SSE PLC ANNUAL REPORT 2022 Powering change together

SSE PLC ANNUAL REPORT 2022

Powering

change

together

Powering

change

together

SSE PLC SUSTAINABILITY REPORT 2022

Strategic

Report

Overview of the year 1

Our strategy 2

Chair’s introduction 6

Chief Executive’s review 8

About our business 10

Our business model 12

Our business explained 14

Our business goals for 2030 18

Key performance indicators 20

Our strategy in action 22

Sector review 28

Our stakeholders 32

A sustainable approach 40

Risk-informed decision making 68

Principal Risks and uncertainties 71

Financial review 82

Operating review 95

Section 172 and non-financial

information statements 110

Directors’

Report

Chair’s introduction 114

Governance at a glance 116

Board of Directors 118

Group Executive Committee 123

Board leadership and company purpose 124

Division of responsibilities 142

Composition, succession and evaluation 143

Nomination Committee Report 145

Audit, risk and internal control 152

Audit Committee Report 152

Energy Markets Risk Committee Report 162

Safety, Sustainability, Health and

Environment Advisory Committee Report 164

Remuneration 168

Remuneration Committee Chair’s statement 168

Directors’ Remuneration Policy 172

Remuneration at a glance 182

Annual report on remuneration 184

Other statutory information 200

Statement of Directors’ responsibilities

in respect of the annual report and

the financial statements 203

Financial

Statements

Alternative Performance Measures 204

Consolidated income statement 214

Consolidated statement of

comprehensive income 215

Consolidated balance sheet 216

Consolidated statement of changes in equity 217

Consolidated cash flow statement 218

Notes to the consolidated financial statements 219

Accompanying information 290

Company balance sheet 324

Company statement of changes in equity 325

Notes to the Company financial statements 326

Independent auditor’s report 336

Consolidated segmental statement 347

CSS audit opinion 353

Shareholder information 355

What we do. SSE provides energy needed today

while building a better world of energy for tomorrow.

We develop, build, operate and invest in low-carbon

electricity infrastructure in support of the transition

to net zero. This includes onshore and offshore wind,

hydro power, flexible thermal generation, electricity

transmission and distribution networks, and localised

energy systems. We also provide energy products and

services for businesses and other customers.

Using our complete

reporting suite

Throughout this report you can find links

to our complementary suite of reporting

by following these icons:

 online at sse.com/annualreport2022

 in other SSE publications

 within another section of this report

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 204 to 212 . The Alternative

Performance Measures SSE uses might not be

directly comparable with similarly titled measures

used by other companies.

Measurement restatements

The Annual Report reflects a number of structural

changes within SSE plc in this reporting year.

These include the disposal of its Contracting

and Rail business; the formation NEOS Networks,

a standalone joint venture Telecoms business;

and the sale of SSE’s stake in SGN. In addition,

the report measures progress against 2030 Goals

as were prior to their revision in early 2022.

Electronic tagging (ESEF)

In accordance with European Single Electronic Format

(‘ESEF’) requirement that UK-listed companies provide

their primary financial statements in standardised

machine-readable format, SSE’s 2022 Annual Report

and Accounts are published as an XHTML tagged

document which can be found on sse.com 

Our front cover

Jennifer Ross, one of SSE Renewables’ maintenance

engineers on the Sloy/Awe hydro scheme, pictured

at Loch Sloy.

1SSE plc Annual Report 2022

STRATEGIC REPORT

Overview of the year

Financial

highlights

In the face of exceptional

macro-economic conditions,

SSE saw strong financial

performance in 2021/22 thanks

to its resilient business model,

solid operational delivery and

good progress on its strategy.

More on pages 18 and 19 

OUR STRATEGY

To create value for shareholders

and society in a sustainable way

by developing, building, operating

and investing in the electricity

infrastructure and businesses

needed in the transition to net zero.

OUR VALUES

All of this is underpinned

by a set of core values

designed to guide decisions

and actions in SSE.

Develop

Cut carbon

intensity by 80%

Safety

If it’s not safe,

we don’t do it.

Service

We are a company

that customers

can rely on.

3SSE plc Annual Report 2022

OUR VISION

To be a leading energy

company in a net zero world.

Efficiency

We focus on what

matters.

Sustainability

We do things

responsibly to add

long-term value.

Excellence

We continually

improve the way

we do things.

Teamwork

We work together,

respect each other and

make a difference.

Increase renewable

energy output fivefold

Enable low-carbon

generation and demand

Champion a fair and

just energy transition

Build Operate

Invest

The Net Zero Acceleration Programme

4 SSE plc Annual Report 2022

STRATEGIC REPORT

Doubling to

8GW capacity

4GW

2023/24

60p dividend

2026

+5% p.a.

£7.5bn

>£9bn

SSE Ownership Minority interest

2025/262020/21

Our strategy continued

SSE’s Net Zero

Acceleration Programme

A combination of confidence derived from strong delivery in

2021/22, rising inflation, higher commodity price expectations

and the value-creation potential of flexible generation assets has

led to an upgrading of SSE’s adjusted EPS CAGR forecast to 2026.

A fully-funded

plan to 2026

In November 2021, SSE announced its

Net Zero Acceleration Programme to add

impetus to decarbonisation of the energy

system and consolidate its standing as a

national clean energy champion in both

the UK and Ireland.

Central to the Net Zero Acceleration

Programme are a fully-funded £12.5bn

capital expenditure plan to 2026 focused

on low-carbon electricity assets and

infrastructure, and ambitious 2031 targets

aligned to a 1.5°C global warming pathway.

Events in the months since November

2021 have underscored SSE’s belief that

its net zero focused strategy, delivered

by a balanced mix of market-based and

economically-regulated businesses,

offers the optimal route to sustainable

growth for the Group and value creation

for all stakeholders.

+100%

renewables capacity growth, delivering

4GW addition to 8GW net

+5%

Rebased dividend at 60p from 2023/24

to grow at least 5% p.a. to March 2026

>10%

Networks RAV growth of +10%

gross CAGR

Capital allocation

Renewables

Networks

Thermal/other

40%

20%

A growth-focused

dividend policy

SSE’s Net Zero Acceleration

Programme called for a

dividend plan aligned to an

ambitious new growth profile.

Accordingly, after meeting its

existing commitment to target

RPI increases to 2022/23, it will

rebase the dividend to 60p in

2023/24 before targeting at

least 5% increases in 2024/25

and 2025/26.

Planned investment

£12.5bn

7-10%

Adjusted EPS CAGR growth projected

by March 2026 from 2020/21 baseline

of 87.5p

5SSE plc Annual Report 2022

Total networks RAV

>£14bn (to 2031)

50TWh

£8.2bn (2021/22)

Ambitions to

2031 and beyond

In support of SSE’s acceleration to net zero,

ambitious business growth targets have

been set for renewables and networks

(see right) and medium- and long-term

climate goals have been revised (see below)

to align to the power sector’s global

warming criteria of...

1.5°C

More on pages 18 to 19 

increase in renewables output to

50Twh p.a. plus maintaining a 15GW

pipeline with 1GW net additions annually

>£14bn

Total networks RAV by 2031

A net zero roadmap to 2050

5-YEAR 10-YEAR 30-YEAR

Short-term investment cycle

• Fully-funded £12.5bn capex to 2026

at the heart of SSE’s Net Zero

Acceleration Programme.

• Growth-focused plan will account for

around 20% of the UK’s revised 50GW

offshore wind target and 20% of UK

electricity networks investment.

Medium-term targets

New, interim science-based climate

goals to 2030:

• Cut carbon intensity by 80%;

• Increase renewable energy

output fivefold;

• Enable low-carbon generation

and demand;

• Champion a fair and just energy

transition.

Long-term transition plan

Commitment to achieving net zero

greenhouse gas (GHG) emissions

across all SSE operations by 2050 at

the latest, covering scope 1, 2 and 3

GHG emissions.

6 SSE plc Annual Report 2022

STRATEGIC REPORT

Chair’s introduction

Fulfilling

SSE’s

potential

2021/22 was marked by extreme weather events,

the ongoing impacts of the pandemic, and most

recently the invasion of Ukraine. These combined

to create extraordinary energy market volatility, security

of supply concerns, affordability challenges, operational

complexities and financial distress in the value chain.

Through it all SSE delivered on its purpose and

demonstrated resilience and growth potential –

continuing to establish the Group as a clean energy

champion in the UK and Ireland.

Within this report, we aim for high standards

of disclosure to help our stakeholders

understand how we create value and fulfil

our social contract. As part of that, we set

out how my fellow Directors and I have

exercised our duties under Section 172 of the

Companies Act to promote the long-term

success of the Company with consideration

to the views of all stakeholders.

For SSE, that means being a purpose-led

company that seeks profitable solutions

to the problems faced by people and our

planet – and we were tested on both fronts

during 2021/22.

Resilience through turbulence

It was a year which highlighted the distinct

but interrelated challenges facing the energy

sector. First, the climate crisis was strongly

in focus as the UK hosted COP26 where

SSE was a proud Principal Partner. Soon

afterwards, concerns over affordability and

the cost of living intensified with Ofgem

announcing a significant increase to the

level of the energy price cap in Great

Britain, and prices also increasing in Ireland,

reflecting soaring wholesale gas prices. And,

latterly, energy security has been in sharp

focus as the world responds to Russia’s

deeply concerning aggression in Ukraine.

Operationally there have also been

challenges, with an ever-changing outlook

on the coronavirus pandemic, market

volatility and extreme weather events.

Throughout all this the Company has

shown resilience, responsiveness, and

continued strong performance that is

described in the following pages.

On behalf of the Board, I would like to

thank all of SSE’s c.11,000 employees,

whether working in the field, in offices or,

indeed, at home, for their efforts over

this challenging year in ensuring SSE

fulfilled its purpose of providing energy

needed today while building a better

world of energy for tomorrow.

£7m

The approximate amount being

invested daily by SSE as part of the

Net Zero Acceleration Programme

Strategic evolution

The transition to net zero will require

accelerating investments in the kind of

low-carbon assets and infrastructure which

already form the core of our business. The

operating context is moving quickly as the

requirements of net zero come into focus,

and competitors and governments move

fast to position themselves for success.

A desire to strengthen energy security in

many countries of the world in light of recent

events accelerates this further and creates

even greater potential for investment and

growth in electrification and renewable

energy. Against such a challenging and

fast-moving backdrop, having a clear

7SSE plc Annual Report 2022

“ In the context of the climate emergency, it is vital that

we align our activities with a pathway consistent with

limiting global warming to 1.5°C, and to recognised

global frameworks. For that reason, we are proud to have

enhanced our 2030 goals this year, which are aligned

with the UN’s Sustainable Development Goals.”

purpose is vital in guiding decision-making

and this was central for the Board as

we carried out the strategic review that

culminated in SSE’s Net Zero Acceleration

Programme, published in November.

Over a period of several months, we

undertook a comprehensive process

to identify the strategic response to this

changing environment that would enable

SSE to fulfil its potential and optimise value

for shareholders and society. Recent events

in Ukraine have served to strengthen and

reinforce the conclusions.

We have continued to reshape the Group,

divesting our investments in gas production

and gas distribution, while focusing and

accelerating investments into renewables,

including international opportunities.

We see substantial investments required

to build networks for net zero, flexible

generation and storage technologies

including pumped hydro storage, solar

and batteries. And we see increased

opportunities for lower-carbon thermal

generation as part of the energy mix. SSE

has options in every part of the net zero

electricity infrastructure value chain.

These are all growth businesses and the

potential in new geographies is significant

as we have seen through our recent

expansion into the Japanese offshore and

Southern European onshore wind markets.

There is more to come as we continue

to evolve, but our Net Zero Acceleration

Programme means we have a clear,

fully-funded plan that will create real value

over the next five years and set us up for

further growth later in the decade.

The landscape will continue to change at

pace and we therefore view the Net Zero

Acceleration Programme as the beginning,

not the end, of our strategic evolution.

Holding ourselves accountable

In the context of the climate emergency,

it is vital that we align our activities with

a pathway consistent with limiting global

warming to 1.5°C, and to recognised global

frameworks. For that reason, we are proud

to have enhanced our 2030 Goals this year,

which are aligned with the UN’s Sustainable

Development Goals.

But it is also paramount that our

shareholders’ views are heard on our

progress towards net zero. We published

our Net Zero Transition Plan in March and

now we have to progress it. We recognise

that there is a long way to go and we

don’t yet have all the answers; but the plan

gives our best current view and, critically,

is open about the challenges to enable

constructive debate. We look forward to

receiving shareholder feedback ahead of

the AGM in July.

A big part of holding ourselves accountable

is taking a leadership position on disclosure.

We adopted TCFD reporting ahead of

time on a voluntary basis back in 2018

and will continue to be proactive in our

reporting. This Strategic Report builds on the

work done in recent years to maximise the

transparency of our stakeholder interactions

and delivery of our social contract.

A critical stakeholder group is SSE’s

employees, and the Board continued to

engage regularly with them through the

year. I’ve been struck by the strength of

SSE’s culture, and it is clearly an important

factor in the Company’s resilience to the

challenges that have been posed in the

recent past. We remain determined to

become an even more diverse and inclusive

company and more details on our efforts in

that respect are set out later in this report.

Looking ahead

It is clear that global ambition for a clean

energy transition that can deliver net zero

while bolstering energy security and

maintaining affordable prices will only

intensify. SSE sits at the heart of that set of

challenges, and our portfolio is fully aligned

with the opportunities which will emerge.

We will remain agile and focused on value

creation within that context, and we will

meet our purpose of providing energy

needed today while building a better world

of energy for tomorrow.

To close, I can confirm that this Strategic

Report and the associated Section 172

Statement on page 110  have been

approved by the Board in line with the

Companies Act 2006.

Sir John Manzoni

Chair, SSE plc

24 May 2022

SSE’s culture, and the people who underpin

it such these apprentices at Peterhead

power station, are the key to the Group’s

ongoing success.

8 SSE plc Annual Report 2022

STRATEGIC REPORT

Chief Executive’s review

Leading the way

to net zero

Having led the refocusing of SSE’s strategy and from his

leadership position in its execution, SSE’s Chief Executive,

Alistair Phillips-Davies, looks back on an exceptional year

of delivery and ahead to a decade of growth to come.

The pages of this report tell a story

of operational delivery and financial

performance that reflects the strides we are

making in execution of our strategy and the

value we are creating for shareholders and

society. We are putting the investment plans

within our Net Zero Acceleration Programme

to work, pursuing growth options and

spending nearly £7m a day on the clean

electricity infrastructure that is so important

to tackling climate change.

Progress made in 2021/22 gives us

confidence in our strategic direction

and optimism about meeting the

ambitious new 2030 Goals set out on

pages 18 and 19 . But the year had

challenges too: it presented us with

uncertainty and day-to-day restrictions

brought by the coronavirus outbreak, a

post-pandemic energy crisis exacerbated

by war in Europe and exceptional weather

events that tested the resilience of our

electricity distribution networks.

The right people

Through it all SSE’s direct employees and

contractors have stuck to the task of

providing energy needed today while

building a better world of energy for

tomorrow. With the rest of the executive

team, I’m immensely proud of the way our

colleagues have responded and very

grateful for what they have achieved.

Keeping those people out of harm’s way

remains our number one priority and

we go into 2022/23 with a renewed focus

on safety and wellbeing after a year of

increased operational activity unfortunately

saw 14 more injuries than in 2020/21.

Our skilled and increasingly diverse

c.11,000-strong workforce is central to

our success and as we grow we need even

more people. We will be creating 1,000

new jobs a year on average over the course

of our five-year capex plan. These are

critical, high-quality jobs in regional areas,

in many cases transitioning skilled people

from high-carbon to low-carbon roles.

We have the right management too, with

business leaders who are the best in their

fields, including new, highly-experienced

managing directors bringing renewed

delivery impetus to SSE Renewables and

SSE Thermal.

The right business mix

Once again a resilient mix of market-based

and economically-regulated businesses

shielded the Group against the worst of

the shocks reverberating through the

economy.

SSE’s business model is based around

the assets and capabilities required for

the global transition to an electrified,

net zero system. This is the result of the

highly successful disposals programme

and targeted investments which have

created a group with the capabilities

and projects to create value right across

the clean electricity value chain. SSE

is an ESG-aligned growth investment

opportunity; with an attractive blend of

regulated and market-based income

streams across a very deliberately

chosen, integrated mix of businesses

Through these businesses, we continued to

work on long-term solutions to problems

faced by the sector that have been brought

into stark relief by geopolitical events. As

policymakers are seeking to break the link

between global energy markets and the cost

of living, our investment in indigenous, lower-

carbon power sources and greater flexibility

is decarbonising the energy system, reducing

dependence on imported gas and supporting

a just transition to net zero.

In a year of strategic delivery high points,

it was perhaps fitting that it closed with the

completion of our SGN stake sale, marking

9SSE plc Annual Report 2022

the end of a disposals programme that

helped us refocus the Group to better

deliver on our purpose.

It was against this backdrop that we were

able to engage actively from our leadership

position as a national clean energy champion

at the COP26 summit in Glasgow. We came

away from the event with the firm conviction

that our strategy is the right one for meeting

the challenges of holding global warming to

a 1.5°C pathway and creating opportunities

for sustainable growth.

Realising Renewables’ ambition

Some of those opportunities are in markets

abroad and, as described on page 25 ,

SSE Renewables’ ambitions are taking

shape in Japan, the US, and most recently

in Southern Europe where we are securing

a foothold with the acquisition of Siemens

Gamesa Renewable Energy’s development

platform which includes 3.9GW of onshore

wind and 1GW of solar and batteries.

Closer to home, our joint ScotWind seabed

auction bid with partners Marubeni and CIP

succeeded in winning our preferred site

and took SSE’s secured pipeline to 11GW.

And in projects under construction,

progress is being made on Dogger Bank,

Seagreen and Viking wind farms.

This progress supports our plans for a

doubling of net renewables installed

capacity to 8GW up to 2026. And this is the

platform for targets including a fivefold

increase in renewables output to 50TWh,

and maintaining a sustained renewables

pipeline in excess of 15GW by 2031.

Networks fit for net zero

Connecting ScotWind will sharpen

an already steep growth trajectory for

SSEN Transmission. Based on the System

Operator’s forecasts, which are likely to

be revised upwards, connected generation

in SSEN Transmission’s licence area could

increase from 8GW today to 25GW by

2030, and we forecast gross RAV to reach

around £12bn over a similar timeframe.

Unlocking the renewables upon which

government net zero targets in the UK

depend is at the heart of a RIIO-T2 business

plan that SSEN Transmission is already

delivering on.

In our electricity distribution business,

strategic planning around network

resilience was drawn on heavily in the year

in the response to six exceptional weather

events in 12 weeks. The scale of the storm

damage inspired heroic efforts from SSEN

Distribution’s employees. In response to

the storms around 2,500 people across

operational and welfare teams worked

tirelessly to safely reconnect 435,000

affected households and businesses and

provide support to affected communities.

Our economically-regulated electricity

networks have evolved into powerful

vehicles for growth. The RIIO-T2 and

RIIO-ED2 business plans have huge

capex requirements and our plans for

bringing in financial partners will enable

us to maximise growth not only in the

distribution and transmission businesses,

but across the wider Group.

Flexibility for the future

The transition to a decarbonised

energy system, with renewables

at its core, connected to consumers via

technologically advanced networks, will

also require flexible plant, lower-carbon

thermal generation and energy storage.

SSE’s development pipeline includes critical

flexibility offered by Coire Glas, the UK’s

largest pumped hydro storage project.

Keadby 2 CCGT will displace less efficient

plant and has potential for hydrogen

blending. Further growth will come for

SSE Thermal with planned CCS plants at

Keadby and Peterhead which, together,

could capture up to 3m tonnes of CO

year – 10% of the UK Government’s 2030

target – and play an important balancing

role. Plans are also progressing for a

Keadby hydrogen plant and a potential

large-scale hydrogen storage facility

at Aldbrough.

SSE’s Net Zero Acceleration Programme

is the framework behind the strategic

progress described above and it forms the

foundations of a decade of unprecedented

growth. Assuming a continued supportive

policy environment, our net investment

into vital UK and Ireland infrastructure

could exceed £25bn over the next 10 years,

creating jobs and addressing the energy

crisis. Our immediate task is to fully optimise

the opportunities that arise from net zero,

using our world-class capabilities, assets

and businesses to fulfil the responsibility we

have for creating shareholder and societal

value over the long term.

Alistair Phillips-Davies

Chief Executive

24 May 2022

15GW

SSE’s target for a sustained renewables

development pipeline by 2031

Alistair meets the project team at Keadby 2,

Europe’s most efficient CCGT, which will

displace older, more carbon intensive power

plant off the UK energy system.

“Our net investment into vital UK and Ireland infrastructure

could exceed £25bn over the next 10 years, creating jobs and

addressing the energy crisis.”

10 SSE plc Annual Report 2022

STRATEGIC REPORT

Enabling electrification

About our business

Contributing across the

energy value chain

SSE has a resilient and highly complementary business model

built on a mix of market-based and economically-regulated

businesses, supported by effective Group Services.

- SSE Renewables

(wind and hydro)

- SSEN Transmission- SSE Thermal

- Gas Storage

- Energy Portfolio

Management

A strategically coherent business mix focused on net zero

Decarbonising generation

Economically regulatedMarket based

Strategic capabilities and opportunities Strategic capabilities and opportunities

Generation mix provides resilience to the Group plus

flexibility and balance to the electricity system

Sector-leading expertise in development and build

of renewables infrastructure

Developer premium provides funding optionality

through timely sell-downs

Thermal transitioning into lower-carbon flexible

generation for the future and supporting security

of supply with gas storage

Solid, index-linked returns with revenues and RAV linked

to CPIH/RPI

Market-leading growth in transmission through

connecting renewables and network reinforcements

Proven expertise in large-scale capital project

management

Ability to deploy innovation and technology at scale

in support of net zero ambitions

11SSE plc Annual Report 2022

Together, as a Group, these businesses are perfectly positioned to capture the

substantial growth opportunities generated by driving and accelerating the net zero

agenda through electricity infrastructure.

Providing energy solutions

Market based

- SSEN Distribution - SSE Business Energy

- SSE Airtricity

- Distributed Energy

Strategic capabilities and opportunities

Market-based revenue streams

The Group’s shopfront for green energy solutions

Route to market for green PPAs

Provides natural hedge for generation output

Net zero aligned distributed energy solutions

and battery and solar technologies

Extensive experience in regulatory and wider societal

engagement

Increased consumer demand and electrification requiring

distribution investment response

Provides financial strength and stability to the Group

Offers funding opportunities through equity partnering

12 SSE plc Annual Report 2022

STRATEGIC REPORT

Our business model

Creating long-term value for

stakeholders and wider society

Employees

SSE’s strategy and success are dependent

on the shared talent, diversity, innovation

and values of the people it employs.

Number of direct

employees

c.11k

Shareholders and

debt providers

SSE must be well-financed, with the ability to

remunerate shareholders for their investment,

secure debt at competitive rates and grow

the business.

Market cap

£18.6bn

at 31 March 2022

Energy customers

Consumers create demand for the energy

and services SSE provides and set the tone

for our purpose.

Networks and supply

customers

£4.98m

Government and regulators

SSE relies on policy frameworks and public

services that support investment in critical

national infrastructure, are fair on customers

and maintain the momentum behind net zero.

Investment in

infrastructure (capex)

£2.1bn

NGOs, communities, society

SSE needs the support of the communities

it works in and the backing of civil society

in pursuit of a just transition to net zero.

Investment in

communities

£11.2m

Suppliers, contractors, partners

SSE relies on a healthy supply chain and

works with partners whose capabilities offer

synergies for innovative project development

and efficient ownership structures.

Suppliers on strategic

relationship

management

programme

More on page 32 

DevelopOperateInvest

Build

• SSE identifies the need for new electricity

infrastructure in domestic and overseas markets,

then works with like-minded partners to deploy

proven and innovative technologies to grow

its development pipeline for the benefit of all

stakeholders. It uses its competitive advantage

and experience in navigating regulatory

and planning processes to secure quality

development sites and required permissions.

• SSE operates assets in a responsive and

responsible way that meets the needs of energy

users. It invests in asset resilience and holds a

robust commitment to the safety and wellbeing

of the people and environments impacted

by its activities. SSE also strives for efficiency

to maximise shareholder return through

operational excellence and the implementation

of innovation, learning and technology.

• SSE draws on a rich heritage in the

construction of large capital projects. It has a

reputation for delivering quality, world-class

assets on time and on budget and is currently

building more offshore wind than anyone else

in the world. With its partners, SSE is using

technology on construction projects that

support the transition to net zero and reduce

costs to consumers over the long-term.

• SSE invests in low-carbon infrastructure through

its £12.5bn five-year investment and capital

expenditure plan. This plan, which is central to

SSE’s Net Zero Acceleration Programme, is fully

funded and underpinned in part by financial

partnering to unlock value and debt secured at

efficient rates to optimise growth. SSE exercises

capital discipline to invest only where returns are

expected to be greater than the cost of capital.

How we do itWho and what we rely on

Natural resources

Science-based carbon

targets aligned to

1.5°C

See pages 56 to 57 .

From wind and water used to produce

energy, to materials used to build energy

infrastructure, natural resources are

essential to SSE’s value creation.

Our six key stakeholder groups

13SSE plc Annual Report 2022

Employees

Number of roles advertised

3,195

Internal and external roles. SSE expects to

create 1,000 new jobs a year up to 2026.

Shareholders and debt providers

Dividend

85.7p

SSE has a clear dividend policy and growth

opportunities to support long-term

shareholder value.

Energy customers

SSE Airtricity Net Promoter Score

36%

Widely-used market research metric

applied to domestic customers across

the island of Ireland.

Government and regulators

Taxes paid UK/Ireland

£335m/€46m

NGOs, communities, society

Community projects supported

1,078

Covering renewables and networks projects.

Suppliers, contractors, partners

Economic contribution UK/Ireland

£5.8bn/€438m

PwC analysis of SSE’s contribution to GDP.

Why we do it

• SSE holds a leadership position in efforts

to decarbonise the energy system.

As a critical service provider it has a

responsibility to develop sustainable

infrastructure and energy solutions.

SSE also has a proven track record in

optimising the developer premium that

comes with a world class reputation for

delivery, taking opportunities to realise

value at key stages of projects for the

benefit of shareholders. By crystallising

value in this way, SSE does not always

wholly own projects on completion

but it does retain a solid asset base to

support future earnings.

• SSE takes seriously its responsibility as

a national clean energy champion and

understands its role in providing the

renewables capacity, the electricity

networks and the flexible, balancing

thermal generation that will be required

if the energy system is to be successfully

decarbonised. SSE also seeks to fulfil its

social contract with the communities it

works in. It supports local supply

chains and is taking a leadership position

to address the impact of change in the

industry, publishing the world’s first

business strategy for a just transition

to net zero.

• The ongoing operation of SSE’s assets is

critical to supporting security of supply

in the UK and Ireland. And while SSE’s

focus has largely shifted to the provision

of large infrastructure, it has not lost

sight of the cost pressures felt by energy

users. It remains committed to the

supply of affordable and accessible

energy in its customer businesses and

responsive to the needs of those who

count on the safe and reliable running

of resilient electricity networks. With

this in mind, SSE promotes a culture of

continuous improvement and active

stakeholder engagement to provide

quality customer service.

• SSE invests to fulfil its core purpose of

providing energy needed today while

building a better world of energy for

tomorrow. Investing for growth supports

the Board’s endeavours to promote the

long-term success of the Company and

enables SSE to remunerate shareholders.

SSE also recognises the wider societal

benefit that comes from careful

investment. It enables SSE to fulfil its

responsibility as a provider of critical

national infrastructure, it creates quality

jobs and makes a significant contribution

to GDP growth through the payment of

the right amount of tax in the right place

at the right time.

The value we create

Natural resources

Scope 1 and 2 emissions cuts

18%

SSE is targeting a 72.5% reduction in

scope 1 and 2 GHG emissions between

2017 and 2030.

14 SSE plc Annual Report 2022

STRATEGIC REPORT

SSE Renewables

Develops, builds, operates and invests in assets

that generate electricity from renewable sources.

RENEWABLES

Who it does it for

For electricity customers across the GB and

Ireland markets, who are increasingly seeking

lower-carbon sources of energy.

How it supports net zero

Develops and generates zero-carbon electricity

at large scale from onshore and offshore wind

farms and provides clean flexible power from

hydro schemes.

How it is remunerated

Through the wholesale energy market, ancillary

services market, Capacity Market, Balancing

Mechanism revenue from hydro output, power

purchase agreements, and government support

schemes for renewable energy.

2.5x

more capital allocated to growing SSE Renewables

compared to the previous capex plans

50TWh

is the targeted fivefold increase in renewables output

to 2031

Our business explained

More on page 96  More on page 98 

16 SSE plc Annual Report 2022

STRATEGIC REPORT

SSE Thermal Distributed Energy

Who it does it for

For electricity suppliers, traders and other generators through the energy

market; for the national grid; and ultimately all electricity customers across

GB. SSE Thermal’s assets provide valued flexibility to the energy system.

How it supports net zero

Produces progressively lower-carbon electricity and electricity system

support to enable net zero transition. Facilitates increasing levels of

renewable electricity by offering flexibility to balance renewables’

natural variability. SSE’s Thermal’s Gas Storage assets have potential to

be repurposed to hold lower carbon gases in future, including hydrogen.

And the strategic value of gas storage has been brought into stark relief

by recent geo-political events and the increasing focus on home-grown

alternatives to dependence on imported fossil fuels.

How it is remunerated

Through the wholesale energy market, Capacity Market and ancillary

services market. Also through responding to forward market volatility and

receiving balancing market revenue from the timely flexibility provided by

generation and storage.

Who it does it for

The public sector and commercial

and industrial markets in the UK and

Ireland. It provides digital services

for buildings, cities and businesses.

How it supports net zero

Through offering services that bring

low-carbon, on-site generation,

storage and delivery flexibility

close to the point of use. Diverse

capabilities (battery, solar, EV

infrastructure, district heating

and networks infrastructure

deployment) offer a local ‘whole

system’ approach.

How it is remunerated

Through the open B2B market,

Capacity Market revenue, CPPAs and

public and private sector tenders.

More on page 108 More on page 103 

What it does

Generates electricity from thermal sources in a reliable way, supporting

balancing of the electricity systems in GB and Ireland. SSE Thermal’s assets

play a key transitional role in the SSE Group and across the wider energy

system. While providing much-needed system flexibility to ensure security

and stability of supply in the short term, the business is also actively pursuing

options to decarbonise its generation fleet progressively over the long

term. In addition, SSE Thermal’s Gas Storage business holds around 40%

of the UK’s conventional underground storage capacity, which provides

time-critical response to unpredictable weather conditions and energy

market fluctuations.

What it does

Following the sale of its Contracting

arm, SSE Enterprise is now referred

to as Distributed Energy, reflecting

the focus of the business on investing

in, building and connecting localised

flexible energy infrastructure. The

former SSE Enterprise entity also

develops solar and battery projects,

operates heat networks, and

offers integration, aggregation

and trading capability.

Our business explained continued

FLEXIBLE GENERATION/ENERGY SOLUTIONS

17SSE plc Annual Report 2022

SSE Business

Energy and

SSE Airtricity

Energy Portfolio

Management

Corporate

Who it does it for

For domestic and business

customers in the Republic of Ireland

and Northern Ireland, and business

customers in Great Britain.

How it supports net zero

Increases the accessibility of

green energy solutions through

the provision of customer-driven

propositions and acts as a partner

to customers and stakeholders as

they seek ways to respond to the

climate crisis.

How it is remunerated

Competing for customers and

direct billing to them and third party

intermediaries (GB), and through

state-supported schemes (ROI).

Who it does it for

For SSE’s Business Units and the

SSE Group.

How it supports net zero

Provides efficient route-to-market

for low-carbon electricity, supports

system balancing and provides

energy solutions for business

energy customers.

How it is remunerated

Receives fees for providing energy

trading services to other parts of

the Group.

Who it does it for

For the SSE Group’s Business Units and their stakeholders.

How it supports net zero

Through the advancement and promotion of SSE’s

sustainability and ESG credentials, and delivery of a net

zero-focused strategy.

How it is remunerated

The Group services function is funded by Business Units

through a recharge model and corporate unallocated costs

as set out in SSE’s Financial Statements.

More on page 109 More on pages 106 and 107 

What it does

SSE Business Energy and SSE

Airtricity provide energy and related

services to households, businesses

and public sector organisations

across Great Britain and the island

of Ireland.

What it does

Combines trading skills and deep

market insights to drive value by

providing energy trading, risk

management and settlement

services, and wider analytical

support and insights, including

Business Unit advice on long-term

market decisions.

What it does

Provides cost-effective shared HR, legal, finance, IT,

procurement, investor relations, corporate affairs and

other services. Ensures compliance with SSE’s regulatory

requirements as a listed company. Develops a strategic

framework that maintains the Group’s focus on net zero

through targeted acquisitions and non-core disposals.

Provides finance and capital allocation to fund growth.

Offers the regulatory and policy insight required to

navigate each stage of the energy value chain.

A well-established operating model supports

SSE’s primary focus on the transition to net zero.

The Business Units described on these pages are

equipped with the resources needed to meet

operational and strategic objectives, and the

autonomy required for effective decision making.

They are supported by Group Services functions

that provide shared services and targeted business

partnering. The segmental breakdown that SSE

reports against is intended to drive efficiency and

provide shareholder visibility of assets and earnings.

CUSTOMER GROUP SERVICES

OUR OPERATING MODEL

18 SSE plc Annual Report 2022

STRATEGIC REPORT

Our business goals for 2030

Measuring

our progress

SSE’s four core business goals for

2030 provide important interim

milestones on the journey to net

zero and place sustainability firmly

at the heart of its business strategy.

In February 2022, SSE refreshed the

2030 Goals to reflect its increased

ambitions. 2020/21 is the last year

progress will be measured against

the original goals shown opposite.

Accelerating business ambition

The 2030 Goals address climate change and are

aligned to the UN’s Sustainable Development Goals.

Since SSE set its first 2030 Goals in early 2019, the pace

and scale of climate action has increased considerably.

The imperative to accelerate pathways to net zero

has provided SSE with significant opportunities for

investment and growth. SSE has also set new 1.5°C-

aligned carbon targets and published its £12.5bn

Net Zero Acceleration Programme out to 2026. This

increasing ambition means that SSE’s 2030 Goals set

in 2019 were no longer as ambitious and stretching as

they once were.

In February 2022, SSE announced updated 2030 Goals

reflecting an accelerated decarbonisation pathway and

ensuring its targets remain stretching to the end of the

decade (see page 5 ).

Progress against the 2030 Goals

To demonstrate its commitment to the 2030 Goals,

performance against them is linked to executive

remuneration. As the 2030 Goals were refreshed in

February 2022, 2021/22 performance was measured

against the previous goals. A summary of this progress

is outlined opposite, with more detail available in the

Remuneration Committee’s Report from page 168 .

Performance against the new 2030 Goals will be

measured from 2022/23 onwards.

Cut carbon

intensity by 60%

Carbon intensity of electricity generated increased slightly

in 2021/22. However, good progress was made in both

renewables growth and paving a way forward for lower-

carbon thermal generation. Plans progressed in the

development of two new power stations equipped with

carbon capture technology with both projects moving

forward to differing degrees in the UK Government’s process

to encourage and support the most competitive carbon

capture plants in the pursuit of net zero ambitions.

Treble renewable

energy output

Excellent progress was made on key offshore projects,

including reaching financial close on Dogger Bank C and

construction progressing at Seagreen and Dogger Bank A

and B. SSE Renewables, along with partners, also won rights to

develop what will become one of the world’s largest floating

offshore wind farms in the January ScotWind leasing round.

With the acquisition of renewables development platforms

in Japan and Southern Europe, SSE is also building pipeline

options in carefully chosen international markets.

Help accommodate 10m electric

vehicles

SSEN Distribution progressed a number of key innovation

projects with partners to support flexible markets and future

infrastructure provision for the mass adoption of electric

vehicles (EVs), including becoming one of the founding

partners of a new international global smart grid partnership.

Champion Fair Tax

and a real Living Wage

SSE maintained its Fair Tax Mark accreditation for the eighth

consecutive year and published its Talking Tax 2021 report.

It achieved ongoing accreditation of the real Living Wage,

completed its first year of Living Hours accreditation, and

is beginning work to roll the new accreditation out in its

supply chain.

More on page 45 

Looking back

at 2021/22

19SSE plc Annual Report 2022

Our progress

Reduction in GHG

emissions from

electricity generation

19%

Renewable generation

output 2021/22*

9.5TWh

SSEN Distribution has

strategic partnerships

and initiatives exploring

smart grid solutions to

support low-carbon

technologies

Consecutive years of Fair

Tax Mark accreditation

Consecutive years of being

Living Wage accredited

GHG emissions from

electricity generation

5.7MtCO

Renewable energy

capacity in construction

at 31 March 2022**

2.4GW

Electric vehicles registered in

SSEN Distribution licence areas

c.56,000

1st year

of being Living Hours accredited

New goals for

2022/23 onwards

* Includes pumped storage, biomass and constrained off wind in GB.

** Based on equity share.

Cut carbon

intensity by 80%

Increase renewable

energy output fivefold

Enable low-carbon

generation and demand

Champion a fair and

just energy transition

20 SSE plc Annual Report 2022

STRATEGIC REPORTSTRATEGIC REPORT

80.0

81.0

85.7

2022

2021

2020

95.4

241.6

78.4

206.3

83.6

40.6

2022

2021

2020

1,16 4

3,482.2

948.9

2,418.0

888.3

497.4

2022

2021

2020

7.2

7.4

8.2

2022

2021

2020

1,442.9

912.0

2,073.7

2022

2021

2020

568.1

427.8

731.8

856.0

351.8

275.8

380.5

220.9

Adjusted

2022

Reported

2022

Adjusted

2021

Reported

2021

Key performance indicators

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.

Resilience

and growth

COMBINED NETWORKS REGULATED ASSET

VALUE (£M)

ADJUSTED INVESTMENT, CAPITAL

AND ACQUISITIONS (£M)

DIVIDEND PER SHARE

(PENCE)

ADJUSTED AND REPORTED EARNINGS

PER SHARE (PENCE)

ADJUSTED AND REPORTED PROFIT

BEFORE TAX (£M)

ADJUSTED AND REPORTED OPERATING PROFIT

BY BUSINESS (£M)

Financial KPIs

Strategic relevance: SSE remunerates

shareholders’ investment through the payment

of dividends.

Performance: The recommended full-year

dividend for 2021/22 is in line with SSE’s five-year

dividend plan to 2023.

Strategic relevance: SSE’s purpose is built on

the strategic logic of a renewables and regulated

networks core that shares common skills and

capabilities in pursuit of net zero.

Performance: Combined, SSE’s renewables and

electricity networks businesses accounted for

nearly 85% of Group adjusted Operating Profit.

Strategic relevance: Adjusted EPS gives a

meaningful measure of financial performance

over the medium term.

Performance: Results in 2021/22 are attributable

to strong performance across a number of SSE’s

Business Units in volatile market conditions.

Strategic relevance: SSE’s ownership of three

economically-regulated electricity networks

gives the Group steady, index-linked revenue.

Performance: Inflation hitting 30-year highs

in the course of 2021/22, combined with

acceleration of network build-out and

reinforcement, contributed to higher

RAV values in the year. 2020 and 2021

data restated to exclude SGN.

Strategic relevance: SSE’s objective is to earn a

sustainable level of profit over the medium term.

Performance: Profits made in 2021/22 reflect the

resilience of SSE’s balanced mix of businesses

while the significant rise in reported figures

relates to net reversal gains on unsettled forward

contracts and reversal of historic impairment

charges in Thermal and Gas Storage.

Strategic relevance: SSE applies strict financial

discipline that supports investment in assets that

are expected to provide returns that are greater

than the cost of capital.

Performance: The good progress made

in execution of the Net Zero Acceleration

Programme resulted a record investment

year for the Group.

Adjusted Reported

Transmission Distribution Renewables

Adjusted Reported

21SSE plc Annual Report 2022

1,932.3

1,995.3

2, 257. 2

2022

2021

2020

674.3

458.4

(134.3)

223.9

364.8

456.1

350.8

412.6

614.4

435 .2

436.2

Adjusted

2022

Reported

2022

Adjusted

2021

Reported

2021

11,442

10,242

9,496

2022

2021

2020

290

256

259

2022

2021

2020

60,550

43,560

47,130

2022

2021

2020

0.16

0.15

0.17

2022

2021

2020

£335m

€46.4m

£379m

€20.4m

£422m

€18.1m

2022

2021

2020

£5.8bn

€438m

£5.2bn

€439m

£5.7bn

€650m

2022

2021

2020

ADJUSTED AND REPORTED CAPEX BY CORE

BUSINESS, BEFORE REFUNDS (£M)

ADJUSTED EBITDA

(£M)

Strategic relevance: Extracting interest, tax,

depreciation and amortisation from earnings

provides a useful measure of SSE’s operational

performance.

Performance: EBITDA in 2021/22 reflects the

strong operational performance achieved by

SSE’s balanced mix of businesses.

Strategic relevance: The primary focus of SSE’s

capex plans is investment in the low-carbon

electricity assets and infrastructure needed to

achieve net zero.

Performance: SSE’s renewables and networks

businesses accounted for around 87% of capex.

Over the course of current five-year plan capital

expenditure will be split 40:40:20 between

renewables; networks; and thermal/other

respectively.

Transmission Distribution Renewables

UK Ireland UK Ireland

More information

SSE’s social contribution: page 58 

Financial Review: pages 82 to 94 

Transmission Operating Review:

pages 96 to 97 

Distribution Operating Review:

pages 98 to 99 

Renewables Operating Review:

pages 100 to 102 

Non-financial KPIs

TOTAL RECORDABLE INJURY RATE PER

100,000 HOURS WORKED (EMPLOYEES

AND CONTRACTORS COMBINED)

JOBS SUPPORTED IN UK AND IRELAND

SCOPE 1 GHG INTENSITY

(GCO

E PER KWH)

ECONOMIC CONTRIBUTION IN UK/IRELANDTAXES PAID IN THE UK/IRELAND

RENEWABLE OUTPUT

(GWH)*

Strategic relevance: Taxes support the public

services everyone relies on. When companies

do well, they should share their success with

society through the payment of taxes.

Performance: A small reduction in total taxes

paid reflects the planned disposals of

non-core business areas during 2021/22,

changes in energy use by customers and

outages at some generation sites.

Strategic relevance: SSE depends on a healthy

and thriving economy to enable its business

success, which is why it calculates the value

it adds to UK and Irish GDP each year.

Performance: SSE’s GDP contribution in

Ireland remained consistent with 2020/22,

while its contribution in the UK increased

in the year, in line with a surge in Net Zero

Acceleration Programme-related investment.

Strategic relevance: Safety is SSE’s No. 1

value, and everybody in the Company

operates to the safety licence of “if it’s

not safe, we don’t do it”.

Performance: A surge in construction

associated with SSE’s record capex in the

year and increased activity following the

recovery from coronavirus unfortunately

led to rise in TRIR.

Strategic relevance: Renewables assets

are core to SSE’s business strategy, which is

centred around the net zero transition. SSE

has a goal of increasing renewable output

fivefold by 2030.

Performance: SSE’s renewable output

decreased due to unfavourable weather

conditions but this was offset by strong

performance in hydro and pumped storage

in volatile markets.

* Includes pumped storage, biomass and

constrained off wind in GB.

Strategic relevance: As a significant generator

of electricity, SSE must reduce the impact of

its operations and has set science-based

targets aligned to a 1.5°C pathway.

Performance: SSE’s scope 1 GHG intensity

increased by 1.2% between 2020/21 and

2021/22. SSE remains on track to achieve its

target to reduce intensity by 72.5% between

2017/18 and 2030.

Strategic relevance: SSE relies on the people

that work for it in order to operate, with its

activities supporting jobs in both urban and

rural areas.

Performance: Through its operations in

the UK and Ireland, in 2021/22 SSE supported

45,290 and 1,840 jobs respectively.

22 SSE plc Annual Report 2022

STRATEGIC REPORT

Investing in a

net zero future

The completion of the sale of SSE’s remaining 33.3% stake in

SGN marked the final step in a strategic disposals programme

announced in June 2020 to streamline the Group and

sharpen its focus on net zero. The sale in March realised

nearly £1.3bn in cash proceeds. SGN had been a good

investment for the Group, delivering a return on investment

of over 18% from an initial outlay in 2005 of £505m for a 50%

stake, however it had become a purely financial interest less

aligned with the Group’s focus on electricity. The disposals

programme overall achieved headline consideration of over

£2.8bn, significantly in excess of the original £2bn target.

Gas networks are no longer part of SSE’s strategic plans, but

regulated electricity distribution and transmission networks

businesses continue to be key drivers of net zero and engines

of growth for the Group. Plans were outlined in the Net Zero

Acceleration Programme to sell minority stakes in SSEN

Transmission and SSEN Distribution, extending a partnering

approach that has worked well in SSE Renewables to

networks to fund growth and unlock opportunities across the

Group. These plans are now progressing with a sales process

initiated with banking advisers in Spring 2022 on a 25% share

in SSEN Transmission.

While these are high-quality, strategically important

businesses and SSE will retain control, the scale of potential

growth and the associated investment required mean that

bringing in minority partners will create greater long-term

value by enabling SSE to harness this significant growth

whilst maintaining an attractive balance of capital allocation

across the Group.

Execution and

acceleration

Our strategy in action

SSE is developing, building, operating

and investing in a well-balanced mix of

assets and businesses. The coming pages

highlight how that strategic focus is making

a meaningful difference in the transition

to net zero through delivery of clean

electricity infrastructure.

23SSE plc Annual Report 2022

Engaging from a

position of strength

SSE is focused on being part of the solution to the climate crisis,

with the capabilities, businesses and assets to create value from

efforts to tackle global warming. It is very deliberately aligned to

prevailing government policy direction, with net zero at the heart

of the business. COP26, where the UK Government asked SSE to

participate as a Principal Partner, served to highlight the critical

importance and global relevance of the Group’s strategy.

The war in Ukraine has brought into sharp focus the need for

greater energy security, prompting European countries urgently

to reduce their reliance on fossil fuel imports. In this context,

governments are recognising it is more important than ever that

indigenous low-carbon investment is expedited to keep energy

affordable and secure.

SSE welcomed the UK Government’s net zero and energy security

strategies, which give a clear signal to low-carbon investors and

developers to keep investing at the scale needed to achieve net zero

by 2050 and support more immediate energy security. And SSE also

takes the support received at the 2021 AGM for an annual vote on its

Net Zero Transition Report as a clear signal of ongoing shareholder

support for its strategic decarbonisation efforts.

The Net Zero Acceleration Programme aligns SSE with 1.5°C

science-based targets and positions it to enable around 20%

of the UK’s 50GW offshore wind target by 2030, and over 20%

of upcoming UK electricity networks investment, whilst leading

investments in flexibility and exporting our renewables capabilities

overseas. The urgency of the climate emergency from COP26

and the resulting Glasgow Pact is clear. SSE believes that

decarbonisation of the energy system could go further and faster

and at the summit it was able to make that case on the world stage.

SSE’s credentials as a world-

class renewables developer

(main image) gave SSE a voice

at COP26 where Finance

Director, Gregor Alexander,

caught up with UN Special

Envoy on Climate Action and

Finance, Mark Carney (right).

24 SSE plc Annual Report 2022

STRATEGIC REPORT

Our strategy in action continued

Powering on with

Group delivery

The 2021/22 year marked a number of significant project

milestones across the SSE Group. SSE Renewables made good

progress at Seagreen, the world’s deepest, fixed-bottom wind

farm, and offshore construction commenced at Dogger Bank,

currently the world’s biggest offshore wind farm at 3.6GW.

Construction has also progressed on the 443MW Viking onshore

wind farm, one of the highest yielding in Europe, which remains

on track for completion in autumn 2024.

SSER’s capital investment programme to extend the life of large

flexible hydro assets has also progressed, with repowering works

commencing at Tummel Bridge in April to extend the life of the

iconic power station beyond 2060.

Commissioning of SSE Thermal’s 893MW Keadby 2, which will

become one of the world’s most efficient CCGT power stations,

started in October 2021 and full commercial operation is targeted

for October 2022, Works are also progressing well at a 50MW

energy-from-waste facility, Slough Multifuel, which remains on

track to be commissioned by late 2024.

A landmark year of delivery for SSEN saw the completion of

distribution network upgrades throughout the North of Scotland

and central southern England. SSEN Transmission meanwhile

made significant progress in 2021/22, building out critical network

infrastructure to unlock renewable generation in the North of

Scotland. This included the completion of Tealing substation

in January, which will enable the connection of the Seagreen

offshore wind farm. Phase one construction milestones were also

reached on major projects including Rothienorman substation and

the Inveraray-Crossaig reinforcement, while construction began

on the 275kV Kinardochy substation in November 2021. Substantial

progress was also made on the pioneering Shetland HVDC link

project, which is on track to connect the islands to the main GB

energy system for the first time by 2024.

Significant progress has also been made by the newly refocused

Distributed Energy business on developing and operating battery

and solar technologies at scale, including the acquisition of a

50MW battery site in Salisbury. Existing grid connections at former

coal-fired sites also put SSE in a relatively unique position to deploy

battery storage at scale and pace, with 150MW opportunities being

considered at Ferrybridge and Fiddlers Ferry. The secured solar

and battery pipeline is now 380MW, with more than a 1GW of

other opportunities being evaluated.

North

America

Permanent SSE base

established in Boston

Europe

Acquisition of c.3.9GW

SGRE onshore wind

platform

SSE-Pacifico

10GW offshore

development

prospects

Japan

25SSE plc Annual Report 2022

Growing our

renewables pipeline

The Net Zero Acceleration Programme promises a trebling of SSE’s

renewables capacity by 2031 with early delivery already under way.

SSE is currently building more offshore wind than anyone else in

the world and its renewables business continues to expand its

sector leading pipeline, now standing at 11GW with opportunities

in development to grow this to a sustained target of 15GW. In

January 2022, SSE and its partners Marubeni and CIP celebrated

success in Crown Estate Scotland’s ScotWind seabed leasing

auction. This was SSE’s preferred site and, once constructed,

will become one of the largest floating wind projects in the world

with a potential capacity of at least 2.6GW.

Plans to export SSE’s significant capabilities to overseas markets

gained momentum with the acquisition of an 80% interest in an

offshore wind development platform in Japan. The new joint

ownership company, SSE Pacifico, will pursue the development

of offshore wind projects in Japan. SSE has taken initial steps into

the emerging US offshore market, establishing a permanent base

in Boston better to pursue options.

In Europe, SSE entered tender bids for the 1.4GW Hollandse Kust

(west) wind farm development zone in the Netherlands; a 50/50

joint venture with Acciona is progressing in Spain and Portugal;

application has been made, also with Acciona, for offshore

development rights in the Baltic Sea in Poland; and most recently

it acquired Siemens Gamesa Renewable Energy’s (SGRE) Southern

Europe wind, solar and batteries development platform. The SGRE

portfolio includes c.3.9GW of onshore wind development projects

– around half located in Spain with the remainder across France,

Italy and Greece – with scope for up to 1GW of additional

co-located solar development opportunities. SSE Renewables also

takes on a team of around 40 employees who bring considerable

local knowledge and expertise to complement the substantial

experience of the existing SSE team in delivering major projects.

Emerging international options present pipeline opportunities;

however, capital discipline will continue to guide investment

decisions.

SSE also has consent for the UK’s largest pumped storage hydro

project at Coire Glas and there has been material progress in the

policy and regulatory environment for such vital long-duration

storage schemes.

Work such as this resilience survey in Killin is

part of SSEN Transmission’s efforts to ensure

a network fit for net zero.

26 SSE plc Annual Report 2022

STRATEGIC REPORT

Our strategy in action continued

Building networks

fit for net zero

With electricity demand expected to more than

double by 2050, regulated electricity networks

are at the heart of the transition to net zero. SSEN

Transmission and SSEN Distribution continue to be

critical to SSE’s strategy and balanced business mix.

The Net Zero Acceleration Programme will enable

SSE to deliver over 20% of all planned UK electricity

networks investment, increasing Regulated Asset

Value (RAV) to £9bn by 2026 (net of proposed 25%

minority stake sales).

SSEN Transmission has made substantial progress this

year on major projects within its capital delivery

programme, including the landmark Shetland HVDC

Link. With options for substantial growth over and

above capital expenditure plans approved under the

RIIO-T2 price control, projects such as the Eastern

HVDC, North Argyll and Skye reinforcement are

expected to progress through the Needs Case

assessment process.

In January 2022, National Grid Electricity System

Operator (NGESO) published its annual Networks

Options Assessment (NOA), which indicated the

need for more than £5bn of investment in electricity

transmission infrastructure in the North of Scotland to

maintain a pathway for net zero. These investments

and the clear need to accelerate reinforcements to

unlock ScotWind start to provide a clear line of sight

on and tangible progress towards 2031 RAV growth

forecasts for SSEN.

SSEN Distribution could see a trebling of demand

in its network areas by 2050, with seismic shifts in

consumption already in progress as electric vehicles

and heat pumps rapidly scale up this decade. The

likely load expenditure required to keep pace with

these changes informed the final business plan for

the 2023-28 RIIO-ED2 price control period, submitted

to Ofgem in December 2021.

The almost £4bn plan sets out how improvements will

be delivered for customers and network investment

accelerated to power communities to net zero. The

plan also proposes £900m of additional potential

investment under regulatory Uncertainty Mechanisms

to help protect customers and provide the necessary

flexibility as opportunities and policy evolves.

27SSE plc Annual Report 2022

Pioneering CCS

and hydrogen

While renewable generation and enabling electricity

networks are at the heart of the Net Zero Acceleration

Programme, it is clear that flexible low-carbon power

will be vital to ensure security of supply when the wind

doesn’t blow and the sun doesn’t shine.

That is why carbon capture projects, like those SSE is

developing in partnership with Equinor at Keadby and

Peterhead, are so important. With thermal generation

continuing to be relied upon to meet electricity system

demand, the UK Government clearly recognises the

pivotal role CCS will play in helping to achieve net zero

targets, and SSE Thermal has made substantial progress

this year in developing these projects. In January 2022,

both Keadby and Peterhead Carbon Capture and Storage

projects were submitted into Phase 2 of the UK

Government’s Cluster Sequencing Process, with

outcomes expected to be announced in mid-2022.

In total, the two lower-carbon power stations at Keadby

and Peterhead would capture up to three million tonnes

of CO

a year – 10% of the UK Government’s 2030 target.

They form part of SSE’s ambitions for the coming decade

and the submission represents significant progress on

delivering SSE’s strategy.

SSE Thermal and Equinor are also working in collaboration

on two further projects in the Humber: Keadby Hydrogen

would be the world’s first 100% hydrogen-fuelled power

station while Aldbrough, located in East Yorkshire, could

be one of the world’s largest hydrogen storage facilities.

Hydrogen storage is expected to play an important role in

a low-carbon hydrogen economy, balancing supply and

demand with hydrogen produced using carbon capture

and electrolytic technologies.

While Keadby 2 (pictured) will be operational in

2022, plans for CCS plants at nearby Keadby 3

and Peterhead in Scotland could play vital

transitional roles in the future.

28 SSE plc Annual Report 2022

STRATEGIC REPORT

Sector review

Navigating a

turbulent world

Having ridden out the worst of the global coronavirus

outbreak, the energy sector was hit in 2021/22 first

by a post-pandemic spike in demand and then the

market repercussions of the war in Ukraine. This sector

review outlines the events that have focused industry,

government and consumer minds on the issues of

affordability, energy security and the climate crisis.

GLOBAL INSTABILITY

War in Europe

deepens cost

of living crisis

Despite COP26 and progress on net

zero, the year was, again, dominated by

uncertainty related to coronavirus and a

post-pandemic energy crisis exacerbated

by the Russian invasion of Ukraine. Soaring

energy prices caused inflation to spike

across the world, hastening a cost of living

crisis amid global energy security concerns.

The commercial impact of a prolonged

conflict in Ukraine is difficult to predict

but SSE has so far been served well by a

prudent hedging approach. SSE does not

have any energy supply contracts with

Russian counterparties, and ceased trading

activities with these entities after the invasion

of Ukraine. The true cost of war is the

devastating humanitarian impact and in

response to the conflict SSE contributed

£1m to the Disasters Emergency Committee.

Governments rapidly introduced measures

to support consumers, strengthen resilience

and reduce fossil fuel import dependence.

The UK Government’s British Energy

Security Strategy committed to a rapid

scaling up of investment in indigenous

renewable generation to support UK

energy independence.

Coire Glas would offer 30GWh of pumped

storage – doubling what is currently available

in the UK.

29SSE plc Annual Report 2022

Growing political

resolve on net zero

COP26 demonstrated a growing consensus

on the need to tackle climate change. The

Glasgow Climate Pact set out the need to

scale up clean power and energy efficiency,

to phase down unabated coal power

generation and to phase out inefficient fossil

fuel subsidies. The message from COP26

was clear: the energy sector must lead the

way on decarbonisation in the 2020s to hold

global warming to a 1.5°C pathway.

The year also saw significant

domestic progress on net zero. Major

announcements were made in the UK

on carbon capture and storage (CCS),

onshore wind, offshore wind and on the

decarbonisation of heat.

In February, the Department for Business,

Energy and Industrial Strategy (BEIS)

announced that Contracts for Difference

(CfD) auctions would be held annually

from 2023 to speed up the UK’s adoption

of renewable power. In October, the UK’s

mid-decade CCS ambitions received a

boost with the announcement of two

‘Track 1’ industrial clusters, including

the Humber cluster, as well as a further

reserve cluster in Scotland.

Crown Estate Scotland’s January ScotWind

announcement saw seabed totalling

7,000km

allocated for up to 25GW of

offshore wind in Scottish waters, while the

Scottish Government this year proposed

to double onshore wind capacity, with

an additional 8-12GW targeted by 2030.

And even more recently, the British Energy

Security Strategy signalled a bringing

forward of a support mechanism for

long-duration storage projects like SSE’s

at Coire Glas.

Driving down the cost

of decarbonisation

Technological innovation has created vast

efficiencies and opportunities in the energy

sector and continues to be the driving force

behind the net zero transition.

Fast paced innovation is helping to support

affordability in the shift to a low-carbon

world at a crucial time for consumers.

Advances in technology and larger turbine

capacities have made wind power the most

cost-efficient source of generation, with

Contract for Difference (CfD) prices for

offshore wind falling from over £140/MWh

to less than £50.

High wholesale prices meant that, if all the

UK’s CfD-awarded wind farms due to be

built by 2027 had been operating under their

CfDs over the winter months of 2021/22,

they would have made over £7bn of

payments back to the scheme administrator

that would have helped reduce future

energy bill costs for consumers.

Meanwhile, SSE marked major developments

in technology, including commissioning of

Europe’s most efficient CCGT, Keadby 2 in

the Humber. Green hydrogen also took a

significant step forward, as SSE Renewables

and Siemens Gamesa announced the

co-location of an electrolyser and battery

storage facility at Gordonbush wind farm in

the Scottish Highlands.

THE CLIMATE EMERGENCY

INNOVATION AND TECHNOLOGY

7,000km

Allocated seabed for up to 25GW of

offshore wind in Scottish waters

SSE’s thermal fleet, which includes 735MW

Medway power station, is providing critical

flexibility in the transition to net zero.

30 SSE plc Annual Report 2022

STRATEGIC REPORT

Sector review continued

The need for a climate

focused framework

Amid the energy sector’s strong, positive

trends, the regulatory environment remains

challenging. Industry engagement with

regulators continues to focus on the need

for an enabling regulatory framework to be

established for the delivery of net zero. In

the UK, there remains a need for Ofgem’s

statutory duties to be amended to facilitate

net zero and timely decision-making, and

the Government has signalled its intention

to address this.

Specific regulatory issues emphasised

in 2021-22 included the development of

a support mechanism for long duration

electricity storage and the need to reform

transmission charges to enable further

investment in Scotland and northern

England. Consumer affordability issues

were also prominent, with changes to

strengthen supplier financial resilience

and cost recovery arising from supplier

failure framing dialogue between the

regulator and industry. SSE has engaged

with the regulator in relation to networks

price controls and uncertainty mechanisms

to unlock the level of investment required

to deliver decarbonisation and renewables

targets.

Looking ahead, 2022-23 will be an

important year as policymakers and

regulators respond to the near-term impacts

of the energy affordability crisis, while

putting in place frameworks to unlock new

low carbon technologies. Wider market and

regulatory reforms are already under way to

enable delivery of net zero at lowest cost

and reduce exposure to global fossil fuel

markets. The UK Government’s Offshore

Transmission Network Review (OTNR) will

conclude with a Holistic Network Design

setting out grid connection dates for

The greening of

debt and equity

The inherent value in developing and

operating low-carbon infrastructure is

increasingly recognised by investors

beyond those with an Environmental,

Social and Governance (ESG) focus. This is

demonstrated by the influx of capital to the

low carbon sector, with growing investment

interest from oil majors and greater direct

investment from infrastructure funds and

institutional investors. This is creating strong

opportunities for SSE in financial partnering

and it supports creating value from

successful development and operation

of assets.

At the same time, both debt and equity

investors are beginning to recognise

the risks and opportunities from climate

change, supported by initiatives such as

the Task Force on Climate-related Financial

Disclosures (TCFD). This means capital is

increasingly flowing to projects and debt

is attracted to green bonds that are well

positioned to benefit from the low-carbon

transition, and less exposed to the

downsides associated with more

emissions-intensive assets.

ENERGY REGULATION

CAPITAL MARKETS

offshore wind projects and the transmission

network upgrades required to deliver the

UK’s flagship 50GW offshore wind target.

More widely, other significant reforms either

initiating or concluding include the

introduction of a Future System Operator

(FSO), distribution network flexibility,

competition in transmission networks,

market mechanisms and frameworks for

long duration electricity storage, CCUS/

Hydrogen and heat networks, many of

which will be included in the UK’s upcoming

Energy Bill in summer 2022. For the longer

term, BEIS will also initiate a Review of

Electricity Market Arrangements (REMA) in

mid-2022, which seeks to reform the GB

electricity market to achieve a cost-efficient,

low carbon power system by 2035.

Turbine jackets ready for installation at

Dogger Bank, the world’s biggest offshore

wind farm.

exceptional weather events in 12 weeks

31SSE plc Annual Report 2022

Adapting to

exceptional events

The energy sector finds itself on the

front line of altered and extreme weather

conditions that are accompanying climate

change. Changes in rainfall and wind

patterns are felt right across the SSE Group.

2021/22 saw less wind and rain than the

previous year, with April-September rainfall

in its hydro catchment areas at the lowest

level since records began in 1950.

For its energy-focused businesses,

erratic weather can determine the output

from renewables assets, the balancing

requirements placed on flexible plant and

energy demand from customers. The full

impact of exceptional weather is felt by

electricity networks and last year no fewer

than six exceptional weather events in

12 weeks tested the resilience of SSEN

Distribution’s operations in both Scotland

and England (see page 66 ).

SSE has established crisis management

measures to mitigate the impact of severe

weather on critical national infrastructure

and it has meteorological expertise to

forecast coming events. This forecasting

not only allows SSE to mobilise operational

teams in good time to support energy

customers, it also informs trading positions

taken by the Energy Portfolio Management

business and purchasing decisions by the

Procurement team.

Climate adaptation strategies are becoming

an increasingly important feature of

government and business decision-making.

For SSE, boosting weather resilience and

assessing climate adaptation requirements

are essential to the ongoing resilience of all

its operational businesses.

EXTREME WEATHER

Engineers clear the damage inflicted

on SSEN Distribution’s northern patch

by Storm Arwen.

32 SSE plc Annual Report 2022

STRATEGIC REPORT

The role of engagement

SSE recognises that a sustainable strategy

is one that reflects stakeholder views and

input. It promotes an open and transparent

approach to engagement, which is

supported by accountability at both Group

and Business Unit level for demonstrating

how stakeholders have been considered

in long-term plans and day-to-day

decision making.

Employees Shareholders

and debt providers

Energy

customers

Why we engage:

Engagement helps SSE attract, retain

and develop a diverse and talented

workforce now and for the future.

Input to SSE:

Talent, skills, values and output.

Value created:

Inclusive, fulfilling and high-

performing workplace, training

and skills development.

Why we engage:

We engage to ensure confidence and

support from those that invest in and

lend to SSE.

Input to SSE:

Provision of finance, strategic

direction and stewardship.

Value created:

Sustainable return on investment.

Why we engage:

Dialogue aims to support the

transition to a decarbonised energy

system in a fair and affordable way.

Input to SSE:

Customer priorities and expectations.

Value created:

Reliable and inclusive provision of

services now and in the future.

Our stakeholders

SSE’s key stakeholder groups

Our key stakeholder groups

Information on our key stakeholder groups

is highlighted by the yellow icon below

throughout the Report.

Working for

stakeholders

The following pages describe the engagement SSE

undertakes with its stakeholders to enable it to fulfil its

purpose, deliver its strategy and create lasting value.

33SSE plc Annual Report 2022

This approach derives from the following

definition: The purpose of stakeholder

engagement in SSE is to ensure that the

perspectives, insights and opinions of

stakeholders are understood and taken

account of when key operational,

investment or business decisions are

being taken, so that those decisions:

• are more robust and sustainable in

themselves; and

• support SSE’s strategic approach

of creating value for shareholders

and society.

SSE’s key stakeholder groups

A long-understood social contract

informs SSE’s view that its stakeholders are

people, communities and organisations

with an interest in its purpose, strategy,

operations and actions and who may be

affected by them.

The relationship with key stakeholders

is two-way, with SSE relying on a range

of inputs, in return for which value is

generated. An overview of the reciprocal

nature of SSE’s relationship with its

stakeholders is illustrated by the business

model framework on pages 12 to 13  and

set out in detail on the following pages.

Engagement methods

SSE adopts a range of engagement methods

to build constructive relationships and a

dynamic, two-way dialogue that tracks

priorities and understanding on specific

stakeholder issues.

These methods exist in a strategic

framework that sees a combination

of business-led and Board-level

engagement and is reflective of legislative

and regulatory requirements. This approach

is characterised, for example, by the

dedicated stakeholder forums in SSE’s

networks businesses. Details of just some

of the engagement methods deployed, and

views captured during 2021/22 are covered

on pages 34 to 39 .

A single metric cannot define the success

or otherwise of a stakeholder relationship.

However, by considering the size of the

stakeholder group, extent of engagement

and value returned – financial or non-

financial – certain measurements can aid

understanding of where further

opportunities or risks exist. Examples of

these measurements are shown in the

business model on pages 12 to 13 

and overleaf.

SSE’s approach results in stakeholder

influence within, and validity of, business

plans and supporting objectives.

The framework set by the Board in which

decision making takes place is explained on

page 134 . It confirms that consideration of

SSE’s purpose, vision, strategy and values,

and its interconnectivity with stakeholders

should drive appropriate outcomes.

Situations will exist where not every

stakeholder interest can be addressed in

full, however stakeholder regard continues

to the fullest extent possible.

Given that stakeholder considerations

are embedded in SSE’s definition of a

healthy business culture, demonstrating

the influence of stakeholders and the

consideration given to them remains a

focus across this Annual Report and the

accompanying Sustainability Report.

Government

and regulators

NGOs, communities

and civil society

Suppliers, contractors

and partners

Why we engage:

Constructive engagement aims to

ensure fair energy sector frameworks

for energy customers and investors.

Input to SSE:

Public policy and regulatory

frameworks.

Value created:

Considered and expert sector views;

delivery of policy and regulatory aims.

Why we engage:

Working openly and progressively

seeks to support the achievement of

shared goals with societal benefit.

Input to SSE:

Distinctive social, environmental and

energy-related perspectives.

Value created:

Robust social contract through which

value is shared.

Why we engage:

Fostering healthy reciprocal

relationships helps SSE to ensure it

achieves the greatest all-round value

from its investments and activities.

Input to SSE:

Quality goods and services and

investment.

Value created:

Sustainable relationships, value

creation and partnership expertise.

SSE’s key stakeholder groups

34 SSE plc Annual Report 2022

STRATEGIC REPORT

2019/20

76%

2020/21

82%

2021/22

82%

Our stakeholders continued

Employees

Engagement helps SSE attract,

retain and develop a talented

workforce now and for the future.

How we engage

Group engagement

• Multi-channel Leader-led Engagement

Programme and business-specific updates.

• Group-wide employee survey to assess

engagement levels.

• Continuous assessment of sentiment and strategic

understanding through post-event polling.

• Data from employee exit surveys.

• Formal engagement with trade unions.

Board engagement

• Active participation in SSE’s Leader-led

Engagement Programme and mentoring of talent.

• Site visits and virtual engagement sessions.

• Complementary and focused work

of SSE’s Non-Executive Director for

Employee Engagement.

• Continuous feedback on employee sentiment

and the support being provided.

More on pages 137 to 139 

Key developments 2021/22

• Ways of working implemented that draw on

lessons learnt through the pandemic and meet

employee expectations for greater flexibility.

• Agreement struck on pay progression for

unionised employees.

• Active engagement with employees on

a just transition.

Material issues raised in 2021/22

• Employee wellbeing, support and resilience.

• SSE’s employee offering: reward, benefits, inclusivity,

flexibility.

• Engagement with inclusion and diversity strategy.

• Engagement with strategy and the Net Zero

Acceleration Programme.

• Engagement with SSE’s approach to a just transition

to net zero.

• Senior leader visibility and engagement.

• The opportunity for all colleagues to have a say and

make a difference within SSE.

• Being supported to make decisions centred around

doing the right thing.

• How employees could engage with and support

SSE’s Principal Partner role at COP26.

Priorities for 2022/23

• Engagement on purpose, vision, strategy and

culture.

• Improving inclusion and diversity.

• Engagement on just transition.

• Articulation of what it means to work for SSE

(employer brand), and the employee experience

end-to-end.

• Enhanced, interactive digital channels including

“always on” feedback functionality.

• Support through the transition to post pandemic

ways of working.

• Recruiting the people needed to deliver on SSE’s net

zero ambitions.

MEASURING ENGAGEMENT AND VALUE CREATED

4,315

employees attended

>150

ex-high-carbon employees

who gave their insights

Employee engagement score SSE’s new Climate Academy SSE’s just transition approach

informed by

Engagement in action case

studies, see pages 61 and 139 

35SSE plc Annual Report 2022

2022

2021

2020

80.0p

81.0p

85.7p

2022

2021

2020

83.6p

78.4p

95.4p

Shareholders and

debt providers

To ensure confidence and

support from those that invest

in and lend to SSE.

How we engage

Group engagement

• Responding to queries from

shareholders and debt providers and

holding meetings with all types of

investors on an ongoing basis.

• Communicating shareholder and debt

provider views to SSE’s senior

management teams.

• Engagement with environmental, social

and governance (ESG) ratings agencies

that many investors and debt providers

rely on to gauge sustainability credentials.

Board engagement

• A programme of Director-investor

meetings covering key financial

announcements, long-term priorities

and specific issues at investors’ request.

• Participation in virtual and physical

investor conferences.

• Monthly Board updates on investor and

financial market sentiment.

• Detailed reporting of shareholder

feedback during and after Half- and

Full-year Results roadshows.

• Bi-annual updates from SSE’s brokers.

• Executive Director engagement with

credit ratings agencies used by debt

providers.

• Engagement with shareholders at SSE’s

Annual General Meeting.

More on page 135 

Material issues raised in 2021/22

• Financial and ESG performance.

• The merits of SSE’s balanced mix of

businesses versus the option to separate

the renewables business.

• The optimal way to fund the Group’s

capex opportunity and the option to

raise equity versus the proposed

networks stake sale.

• Balancing growth and income in the

context of shareholder remuneration.

• Returns and competitive pressure,

particularly in renewables.

• Optimal capital allocation across the

Group’s businesses.

• Linking refreshed strategic ambition

within SSE’s Remuneration Policy review.

Priorities for 2022/23

• Reinforce shareholder and debt

providers understanding of SSE,

including its business mix, leadership

approach, index linked assets and

earnings and ESG credentials.

• Improve external understanding

surrounding the role and value of flexible

generation plant and the electricity

networks businesses.

• Annual governance meetings between

the Chair and shareholders.

Key developments

2021/22

• Initiation of a Shareholder

Engagement sub-Committee

to ensure equitable

understanding of shareholders’

priorities surrounding

long-term direction, and

reflection of shareholder views

in SSE’s strategic ambitions.

• Plans for a rebased dividend as

part of SSE’s Net Zero

Acceleration Programme.

• Shareholder support for an

annual vote on SSE’s Net Zero

Transition Report from 2022.

• Shareholder consultation on

SSE’s approach to Executive

Remuneration.

MEASURING ENGAGEMENT AND VALUE CREATED

153

Dividend per share Earnings per share

One-to-one investor sessions 2021/22

Engagement in action case

studies, see pages 48, 128

and 136 

36 SSE plc Annual Report 2022

STRATEGIC REPORT

2021

36%

2022

2021

2020

746,821

770,844

768,104

2022

2021

2020

765

870

827

Our stakeholders continued

Key developments

2021/22

• The impact of the rising

cost of living on SSE’s

energy customers.

• Supporting customers through

the impact of exceptional

weather events on

networks resilience.

Energy customers

Dialogue aims to support the transition

to a decarbonised energy system in

a fair and affordable way.

How we engage

Group engagement

• SSE directly serves energy customers in

the domestic (all-island Irish) and

business-to-business (UK and Ireland)

energy supply markets and provides grid

connection to non-direct networks

customers in its Distribution and

Transmission operating licence areas.

• Engagement methods include dedicated

panels to ensure the perspectives of

vulnerable customers are considered

and forums to engage with large

business customers.

• SSE also monitors a wide range

of indicators of performance and

customer sentiment.

• SSE works with third parties actively to

identify and make provision for customer

vulnerability, including through

encouraging eligible customers to be

added to the Priority Services Register.

Board engagement

• Board updates from each SSE business

on the stakeholder factors which are

driving business direction and

propositions.

• Board monitoring of customer

performance to ensure delivery of an

appropriate level of service and

investment.

Material issues raised in 2021/22

• Affordable and accessible energy in the

context of ongoing market volatility and

increasing international instability.

• Responsiveness to need and

vulnerability with particular focus on

impact of exceptional weather events.

• Quality customer service.

• Using energy efficiently.

• Costs and benefits of the ED2

business plan.

Priorities for 2022/23

• Sharp focus on cost of living means

there is a need to increase support for

SSE’s vulnerable customers.

• Enhanced focus on emergency

customer support following increased

frequency of extreme weather events.

• Improved customer satisfaction

and service.

• Updated customer strategy being

reviewed and implemented in SSEN

Transmission for connection customers

i.e. generators.

MEASURING ENGAGEMENT AND VALUE CREATED

Customers on SSEN Distribution’s

Priority Services Register (PSR)

Stakeholder engagement events held

by SSEN Distribution

SSE Airtricity Net Promoter Score

(domestic customers)

Engagement in action case

study, see page 66 

37SSE plc Annual Report 2022

Government and

regulators

Constructive engagement aims to

ensure fair energy sector frameworks

for energy customers and investors.

How we engage

Group engagement

• Through SSE’s Political Engagement Policy under

which it makes representations to the institutions of

government in a politically neutral way consistent

with the company’s core purpose.

• Ongoing constructive dialogue with Ofgem

on networks regulatory price controls, market

design and carbon pricing, CCS and hydrogen.

• Panel discussions and thought leadership reports to

engage stakeholders with key issues.

Board engagement

• Board oversight of the implementation

of SSE’s Political Engagement Policy and

corresponding advocacy priorities.

• Monitoring of engagement activity and

responses to regulators to ensure that strategic,

financial, investment and operating frameworks

remain aligned to the external landscape.

MEASURING ENGAGEMENT AND VALUE CREATED

Direct COP-related engagements

Material issues raised in 2021/22

• Cost-effective delivery of low carbon infrastructure.

• Fair treatment of energy customers.

• Security of supply and critical infrastructure

provision.

• The RIIO-T2 and RIIO-ED2 business plans.

• Flexible networks and the transition to Distribution

Network Operator.

• Engagement on market design, carbon pricing and

support mechanisms.

Priorities for 2022/23

• Required investment in electricity network

infrastructure to deliver a net zero energy system.

• Flexible networks and the transition to DSO.

• Engagement focused on energy market reform

including role of Electricity System Operator,

role of Ofgem, competition and policy conducive

to investment.

• Support mechanisms/framework to enable

cost-effective delivery of low carbon/zero carbon

generation and maintain security of supply (Coire

Glas, CCS/hydrogen, heat networks etc).

• Establishing high-quality teams able to engage with

government and regulatory stakeholders in new

jurisdictions, in line with SSE’s international

expansion plans.

Key developments 2021/22

• Through SSE’s Principal Partnership of COP26

it was able to build key strategic relationships

and support a number of climate-linked policy

announcements.

150 14

Public endorsements of SSE’s net zero

strategy

New strategic partnerships formed

Engagement in action case

studies, see pages 23, 29

and 46 

38 SSE plc Annual Report 2022

STRATEGIC REPORT

Our stakeholders continued

NGOs, communities

and civil society

Working openly and progressively seeks to

support the achievement of shared goals

with societal benefit.

How we engage

Group engagement

• Partnering with key NGOs to deliver

social and environmental benefits for the

communities in which SSE operates.

• Community consultation events

throughout the year to gather feedback

on projects and business plans.

• Collaboration with academic

partnerships to inform strategic

decision-making and knowledge sharing

on policy, energy systems and

innovation.

Board engagement

• Review of SSE goals set within the

UN Sustainable Development Goals

framework and oversight of associated

strategic delivery plans.

• Due consideration of the local

community benefits of large capital

project investment.

Material issues raised in 2021/22

• Environmental protection and

decarbonisation.

• A fair and just transition to net zero.

• Cost of living crisis.

• Employment standards, including Living

Wage and inclusion and diversity.

• How SSE shares value with local

communities and wider society.

• Responsible behaviour of large

businesses.

Priorities for 2022/23

• Continued advocacy and support for

addressing energy affordability and fuel

poverty.

• A fair and just transition to net zero.

• Decarbonisation of the energy system.

• Work between SSEN Transmission and

other network operators on a

standardised approach to social return

on investment.

Key developments

2021/22

• Setting of interim business

goals within the UN

Sustainable Development

Goals framework.

• Customer vulnerability and

fuel poverty.

MEASURING ENGAGEMENT AND VALUE CREATED

>25,000 127 5

Stakeholders consulted as part of ED2

business plan process

Communities directly engaged with

through SSE Renewables’ community

investment funds

Strategic academic partnerships

Engagement in action case

study, see page 67 

39SSE plc Annual Report 2022

2022

2021

2020

Suppliers, contractors

and partners

Fostering healthy reciprocal relationships

helps SSE to achieve the greatest all-round

value from its investments and activities.

How we engage

Group engagement

• Regular meetings as part of SSE’s Supplier

Relationship Management (SRM) programme are

held to discuss material issues for both companies.

Board engagement

• Executive Director meetings with strategic

partners and suppliers.

• Board updates on joint venture project

strategy and progress in domestic and

international markets.

Key developments 2021/22

• Creation of the Powering Net Zero Pact to

progress a just energy transition for the power

sector by focusing on key areas of ambition.

• A notable output from the SRM programme

was an increased focus on local content to

encourage UK investment. This engagement

continues in all areas of SSE’s supply chain,

from international turbine and cable

manufacturers to more localised civil

contractors.

Material issues raised in 2021/22

• Management and mitigation of health and safety

risks on sites.

• Economic opportunities in local supply chains.

• Mitigation and management of social and

environmental impacts.

• Project design and innovation.

• Effective governance and operations.

• Fair expectation in the delivery of projects and

prompt payment.

• Energy sector resource gaps.

• Third party labour practices in emerging

technologies.

Priorities for 2022/23

• The key focus areas of the Powering Net Zero Pact,

namely: net zero, natural world, circular economy,

fair work and valuing communities.

• Industry understanding of Scope 3 emissions.

• Development of sustainable policies and

enhanced collaboration to implement more

sustainable practices.

• Enhancing health and safety standards.

• Supply chain resilience and managing the impact of

inflation across SSE’s development pipeline.

• Interaction through the SRM programme presents

opportunities to engage with the supply chain on

value-adding areas such as innovation, engineering

and sustainability, and allows SSE to work closely

with suppliers to ensure visibility on latest

technologies and efficiency improvements.

MEASURING ENGAGEMENT AND VALUE CREATED

Suppliers on SSE’s strategic

relationship management programme

Leadership status

achieved for supply

chain engagement

with CDP for its 2021

submission.

Strategic suppliers that, with SSE,

are founding partners of the Powering

Net Zero Pact

Engagement in action case

study, see page 59 

40 SSE plc Annual Report 2022

STRATEGIC REPORT

Powering

change

together

SSE PLC SUSTAINABILITY REPORT 2022

“Sustainable outcomes do not happen by accident. They are the result

of careful decision making that ensures social, environmental and

economic impacts are balanced and enhance value. 2021/22 was an

important year to that end, not least in developing detailed action plans

that support the achievement of net zero. Predicting and pre-empting

negative social impacts from the energy transition to net zero was a

focus of SSE’s attention too.”

Rachel McEwen

Chief Sustainability Officer

Powering

sustainable

change

SSE’s Sustainability Report 2022

SSE’s Sustainability Report 2022 is the sister

document to the Annual Report 2022. It provides

enhanced disclosure of SSE’s policies, practices

and performance against its key economic, social

and environmental impacts and goals.

Sustainability

highlights

SSE’s approach to

sustainability

See more on page 41 

Protecting the

environment

Climate-related financial

disclosures.

See more on page 42 to 55 

Conserving the natural

environment.

See more on pages 56 to 57 

SSE’s social

contribution

Generating value across

society.

See more on pages 58 to 59 

Guaranteeing fair work and

good jobs.

See more on pages 60 to 65 

Providing access to affordable

and clean energy.

See more on pages 66 to 67 

A sustainable approach

41SSE plc Annual Report 2022

Materiality established

Driven by SSE’s strategy “...creating value for shareholders and society...”

Four highly material SDGs linked to SSE'S 2030 Goals

Cut carbon

intensity by 80%

Reduce scope 1 carbon

intensity by 80% by 2030,

compared to 2017/18 levels,

to 61gCO

e/kWh.

Increase renewable

energy output fivefold

Build a renewable energy

portfolio that generates at

least 50TWh of renewable

electricity a year by 2030.

Enable low-carbon

generation and demand

Enable at least 20GW of

renewable generation

and

facilitate around 2 million

EVs and 1 million heat

pumps on SSEN’s electricity

networks by 2030.

Champion a fair and

just energy transition

Be a global leader for the

just transition to net zero,

with a guarantee of fair work

d commitment to paying

fair tax and sharing

economic value.

Environmental management and governance

Three further material SDGs linked to SSE’s Environmental Strategy

Natural environmentResource use

Aligned to shared value global framework United Nations Sustainable Development Goals (SDGs)

SSE’s 2030 Goals

SSE’s

Environment

Strategy

A sustainable business strategy

The UN’s 17 Sustainable Development

Goals (SDGs) are the global blueprint for

a sustainable future. SSE believes they

provide a useful framework through which

to align its strategic business objectives

with societal objectives.

Since 2019, SSE has aligned its business

strategy to the SDGs most material to its

business. The schematic above depicts the

flow of sustainability from SSE’s objective

set in its strategy statement to “create

value for shareholders and society” with

UN SDGs providing the framework to guide

the creation of shared value. Within this

framework SSE has identified four SDGs

which are highly material to the business,

and to which it has linked its four core

2030 Goals, and a further three material

SDGs, which are focused on the

environment and guide the pillars

of SSE’s environment strategy.

SSE refreshed its 2030 Goals in February

2022 to reflect SSE’s increasing net zero

ambitions. More information on SSE’s

sustainability framework can be found in

the Sustainability Report 2022 .

Developments in sustainability

reporting standards

At COP26, in November 2021, the creation

of the new International Sustainability

Standards Board (ISSB) by the International

Financial Reporting Standards (IFRS)

Foundation was announced. Most of the

international standard setters have indicated

their support for the ISSB and SSE hopes

this will be an important step towards

providing the clarity that companies

are seeking around globally aligned

sustainability reporting standards.

The UK Government has endorsed the ISSB

approach, indicating its intentions to use

the standards as the framework for the new

UK Sustainability Disclosure Requirements

(UKSDR). The UKSDR will build on measures

already under way to implement TCFD-

aligned disclosure rules, expanding the

scope to cover wider sustainability topics

beyond climate change, and will include

requirements for listed companies to

publish net zero transition plans. Ahead of

these requirements, SSE published its own

Net Zero Transition Plan in March 2022,

one of the aims of which is to stimulate

enhanced engagement with shareholders

and other stakeholders.

Aligning with external frameworks

SSE is a signatory to the United Nations

Global Compact (UNGC), incorporating

the Ten Principles of the UNGC into its

approach to business, and aligns disclosures

and KPIs in its Sustainability Report to

international non-financial reporting

standards, including the Global Reporting

Initiative (GRI) and the SASB Standards. SSE

also actively engages with key investor ESG

ratings agencies and investor-led initiatives.

Detail of SSE’s performance in these ratings

can be found at sse.com/sustainability .

SSE’s approach to Sustainability

42 SSE plc Annual Report 2022

STRATEGIC REPORT

it will carry out over the course of

2022/23 with a view to disclosing in

2023. SSE further believes there is an

opportunity for increasing maturity of

all TCFD disclosures and will actively

seek feedback from shareholders and

stakeholders on best practice.

Compliance is indicated against the

recommended disclosures in the relevant

sections using the following key:

Compliant

Partially compliant

Not compliant

A sustainable approach continued

Protecting the

environment

The twin challenges of climate change and the decline in nature are

the greatest threats facing the future of humankind. Addressing the

challenge of climate change is the most material action SSE can take

to reduce its impact on the environment, however it also has wider

environmental impacts that must be carefully managed.

Task Force on Climate-related

Financial Disclosures (TCFD) recommendations

The Task Force on Climate-related Financial

Disclosures (TCFD) was established by the

Financial Stability Board to improve reporting

of climate-related risks and opportunities.

SSE has structured its climate disclosures

according to the TCFD recommendations

since 2018 believing that good quality

information about its climate-related risks

and opportunities supports shareholders to

make long-term investment decisions.

Mandated climate-related

financial disclosure in the UK

SSE is required to report against the TCFD

recommendations and recommended

disclosures in its Annual Report covering

the financial year ended 31 March 2022

according to the Financial Conduct

Authority (FCA) listing rule LR 9.8.6 R(8).

The rule requires relevant companies

to report on a ‘comply or explain’ basis

against the TCFD recommendations.

SSE is compliant with the TCFD

recommendations and recommended

disclosures, with the exception of

recommended disclosure Strategy 2.c

where it explains on page 48  the work

Climate-related

financial disclosures

More on page 43  More on page 45  More on page 49  More on page 54 

1. Governance

Disclose the

organisation’s

governance around

climate-related risks

and opportunities.

2. Strategy

Disclose the actual

and potential

impacts of climate-

related risks and

opportunities on the

organisation’s

businesses, strategy,

and financial

planning where

such information

is material.

3. Risk

management

Disclose how the

organisation

identifies, assesses,

and manages

climate-related risks.

4. Metrics and

targets

Disclose the metrics

and targets used to

assess and manage

relevant climate-

related risks and

opportunities where

such information

is material.

43SSE plc Annual Report 2022

Board Level

Executive

Level

Business Level

Board oversight of climate issues

The Board establishes SSE’s purpose, vision

and strategy with due consideration given

to all material influencing factors including

those related to climate change.

The Board assessment of climate-related

matters is informed through presentations

across dedicated strategy sessions and

within Board meetings, which cover the

substance of the physical and transitional

opportunities and risks associated with

climate change (see page 133  ). This

approach is consistent with SSE’s net

zero-aligned strategic objectives and the

presence of climate-related issues across

vast areas of Board work.

The Board’s assessment of risk is reflected

both in the strategic decisions it takes, and in

the identification of the Group Principal Risks

and emerging risks which have the ability

to affect achievement of agreed strategic

objectives and, in turn, long-term success.

Within financial year 2021/22, the Board

considered and approved accelerated

science-based emission targets; revised

business goals to 2030 aligned to the UN

Sustainable Development Goals; the Net

Governing climate-related risks and opportunities

Zero Acceleration Programme; and the Net

Zero Transition Plan.

Board Committee support is provided on

climate-related issues in the following ways:

• The Nomination Committee ensures the

Board possesses the correct depth and

balance of capabilities to support SSE’s

long-term position, including the

expertise to assess the impact of climate

change (see pages 145 to 151 ).

• The Audit Committee supports the Board

on matters relating to financial reporting,

internal control and risk management.

The Committee reviews the integrity of

SSE’s climate-related financial reporting

and the process used to develop SSE’s

TCFD-aligned disclosures (see pages 152

to 161 ).

• The remit of the Safety, Sustainability,

Health and Environment Advisory

Committee (SSHEAC) was expanded in

the year to oversee SSE’s climate

adaptation and resilience plans (see

pages 164 to 167 ).

• The Remuneration Committee supports

implementation of Board approved policy

on climate related opportunities and risks,

through inclusion of sustainability-linked

metrics and targets within performance

Meeting TCFD recommended

disclosures:

1. Governance

a) Describe the board’s oversight of

climate-related risks and

opportunities.

b) Describe management’s role in

assessing and managing climate-

related risks and opportunities.

Structured governance pathways

Board of Directors

Sets SSE’s purpose, vision and strategy with oversight of SSE’s most material sustainability impacts, risks and opportunities, including climate

change.

Nomination Committee

Responsible for Board appointments and the balance

of capabilities to assess SSE’s long-term situation.

SSHEAC

Oversees SSE’s climate adaptation and

resilience plans.

Group Executive Committee

Responsible for the implementation of strategy,

including sustainability policies and practice relating to

climate change.

Audit Committee

Oversees the assurance model and integrity of SSE’s climate-related

financial disclosures in SSE’s Annual Report.

Remuneration Committee

Responsible for remuneration policy including climate factors within

performance related pay.

Group Risk Committee

Responsible for reviewing and recommending the processes, controls

and content of climate-related financial disclosures.

TCFD Steering Group

Responsible for advising and steering the development of comprehensive and fair, balanced and

understandable climate-related financial disclosures.

TCFD Working Group

Responsible for the production of SSE’s climate-related opportunity and risk disclosures, including financial impacts

and ensuring appropriate stakeholder input.

related pay for SSE’s Executive Directors

(see pages 168 to 199 ).

The Board-agreed division of

responsibilities across key areas of SSE’s

Governance Framework, are set out in:

the Board’s Schedule of Reserved Matters;

the Terms of Reference of the Board

Committees and the Group Executive

Committee; and the role profiles for key

Board roles. See sse.com  and pages 124

and 142 .

44 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

Protecting the environment continued

Role of senior management

Strategy is implemented by the Group

Executive Committee through the

operational management of SSE’s Business

Units and monitoring of performance in line

with agreed plans. This includes ensuring

that business decisions are being taken in

line with the parameters set by the Board,

such as SSE’s 2030 Goals and science-

based targets, and for monitoring new and

emerging issues that require escalation.

As Chair of the Group Executive Committee

the Chief Executive retains responsibility

for the management of climate-related

initiatives under agreed strategy and in turn,

driving progress. In support of this, the Chief

Executive agrees the annual objectives for

the Chief Sustainability Officer who is a

direct report. The Chief Sustainability

Officer advises the Board, Group Executive

Committee, Group Risk Committee and

Business Units on climate-related matters

and progress under the stated Net Zero

Transition Plan.

The Group Risk Committee (GRC) monitors

all Group risks on a periodic basis and

ensures that the Business Units are managing

the risks for which they are responsible. The

GRC has overall responsibility for ensuring

the right mechanisms are in place for

managing all risks, including climate-related

risk and opportunities. Reporting to the GRC

is a TCFD Steering Group, comprising of

representatives from Group Finance, Group

Risk and Sustainability, focused on advising,

steering and governing the development of

fair, balanced and understandable climate-

related financial disclosures.

SSE has a set of Group Policies applicable

across its entire organisation, of which

Climate Change and Sustainability are two.

Policies are reviewed and endorsed by

Group Executive Committee and approved

by the Board annually. Compliance with

Group policies is also considered as part

of the annual review of the effectiveness

of the system of internal control

(see page 161  ).

Executive-level

Board-level

Recommended

Board approval

of accelerated

science-based

targets which

aligned to the

SBTi 1.5°C power

sector guidance.

Recommended

Board approval

of SSE’s updated

2030 business

goals linked to the

UN SDGs placing

climate change at

the centre of SSE’s

strategy, targets

and actions.

Group Risk

Committee

approval of

SSE’s governance

and controls for

climate-related

financial

disclosures.

Recommended

Board approval

of SSE’s Net Zero

Transition Plan.

Board approval

of management-

More on page 169 

SSE’s key developments in

2021/22:

• Board approves SSE’s Net Zero

Transition Plan, which can be found

at sse.com/sustainability .

• Audit Committee now approves

SSE’s assurance arrangements for

its TCFD disclosures, see pages 153

and 155 .

• Board consideration of net zero

in strategic development and

principal decisions, see pages

126 to 133 .

45SSE plc Annual Report 2022

A strategy to support net zero

Providing profitable

solutions to climate change

Through the delivery of its purpose SSE is

directly addressing the energy transition to

net zero and reflecting society’s priorities on

climate change. It achieves this through its

strategy of developing, building, operating

and investing in the electricity infrastructure

and businesses needed in the transition to

net zero.

With SSE’s direct emissions (scope 1) cut

by 78% since their peak in 2006/07, SSE

has a well established decarbonisation

strategy and has been transitioning its

electricity generation portfolio to one

dominated by renewable and low-carbon

thermal sources of generation.

SSE’s goal is to achieve net zero GHG

emissions across its scope 1 and scope 2

emissions by 2040 (subject to security of

supply requirements) and for remaining

scope 3 emissions by 2050. These long-

term net zero ambitions are supported by

interim science-based targets aligned to

a 1.5°C pathway. Progress against these

targets is outlined on pages 54 to 55 .

A plan for a net zero transition

In March 2022, SSE published its Net Zero

Transition Plan. The Plan clearly sets out

for stakeholders the key actions SSE will

take to drive progress towards its net zero

ambitions and its interim science-based

targets aligned to a 1.5°C pathway.

SSE will disclose annual progress against

this plan through its Net Zero Transition

Report, which will be subject to shareholder

vote each year. Progress in 2021/22 is

disclosed across SSE’s Annual and

Sustainability Reports. A standalone

summary Net Zero Transition Report has

also been published to aid stakeholder

engagement, which can be found at

sse.com/sustainability .

Advocating for climate action

SSE actively and positively advocates for

more ambitious climate change policy to

achieve net zero, with a significant focus for

advocacy activities in 2021/22 being linked

to its Principal Partnership on COP26. SSE

conducts its advocacy in line with the goals

of the Paris Agreement and its own net

zero strategy. It reviews trade association

membership annually to ensure that the

organisations of which it is a member also

advocate in line with the ambitions of the

Paris Agreement. In December 2021, it

published the results of this annual review

for the first time. Detail of advocacy

activities undertaken across 2021/22 can

be found throughout the Strategic Report

of this Annual Report (pages 1 to 94 ) and

in SSE’s Sustainability Report 2022.

Investing in the net zero transition

In November 2021, SSE announced its Net

Zero Acceleration Programme, which

includes a £12.5bn, fully-funded capital

investment plan between 2021 and 2026

alongside ambitious 2031 targets, aligned

with net zero. The Programme is the

practical application of SSE’s strategy and

seeks to cement SSE’s position as a national

clean energy champion, enabling the

contribution of around 20% of the UK’s

revised 50GW offshore wind target and

over 20% of the required investment in

UK electricity networks, whilst deploying

flexibility solutions to secure electricity

supplies and exporting SSE’s renewables

capabilities overseas.

All five of SSE’s most material climate-

related opportunities as outlined on

pages 51 to 52  are factored into this

strategic capital investment plan. In

2021/22, SSE invested £2.1bn of this

planned £12.5bn capital investment. SSE’s

future capital investment plans, including

those for any thermal assets, will be based

on clear internal investment criteria, which

ensures alignment to SSE’s commitment to

its core 2030 business goals including the

targeted reductions in GHG emissions.

Meeting TCFD recommended

disclosures:

2. Strategy

a) Describe the climate-related risks

and opportunities the organisation

has identified over the short,

medium, and long term.

b) Describe the impact of climate-

related risks and opportunities

on the organisation’s businesses,

strategy, and financial planning.

c) Describe the resilience of the

organisation’s strategy, taking into

consideration different climate-

related scenarios, including a

2°C or lower scenario.

Target Short term (to 2025) Medium term (2025 – 2035) Long term (2035 – 2050)

Engage with 50%

of suppliers by

spend to set an

SBT by 2024.

Reduce the carbon

intensity of scope 1

GHG emissions by

80% by 2030, from

2017/18 baseline.

Reduce absolute

scope 1 and 2 GHG

emissions by 72.5%

by 2030 from a

2017/18 base year.

Reduce absolute

GHG emissions from

use of products sold

by 50% by 2034 from

a 2017/18 base year.

Net zero for SSE’s

scope 1 and 2

emissions by 2040.

Net zero for all SSE’s

remaining scope 3

emissions by 2050.

S3 S1

S2S1

2025 2035 2050

Scope 1

Scope 2

Scope 3

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 .

Net Zero Transition Plan pathway

46 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

Protecting the environment continued

Financing climate strategies

SSE understands that investors are

increasingly looking for robust mechanisms

through which they can ensure their

investments are sustainable and take

account of climate-related risks. To support

the growth of green finance, SSE also has

pursued a strategy of issuing green bonds

to fund its net zero investment plans. SSE

has issued four green bonds, with the total

outstanding at £2bn which reaffirms SSE’s

position as the largest issuer of green

bonds in the UK corporate sector.

Aligning to taxonomy definitions

A developing UK Taxonomy

SSE supports the development of

sustainable finance beyond green and

sustainable debt markets. The establishment

of a European Taxonomy is an important

step forward in defining environmentally

sustainable economic activity within

equity markets and, as a UK-listed energy

company, SSE is looking forward to the

establishment of a UK Taxonomy based

on the broad principles established by the

EU. In support of a consistent, although

UK-appropriate, taxonomy, SSE engaged

constructively with several stakeholders

in 2021/22, including HM Treasury and

the Department of Business, Energy and

Industrial Strategy to suggest ways in which

the UK Taxonomy could be developed to be

simpler, transparent and auditable. SSE has

made the case that:

• Any inclusion of gas generating activities

within the UK Taxonomy should demand

carbon abatement;

• The operational expenditure metric be

replaced with alternative metrics which

are clearly defined and auditable, such as

operating profit and loss metric which is

captured within the UK adopted IFRS

financial reporting standards;

• To ensure all relevant economic activity

is captured, activities measured should

encompass projects within joint control,

such as equity investments into large

scale offshore wind farm projects.

Assessing SSE’s activities

To provide stakeholders with an initial

indication of SSE’s economic activities

according to taxonomy criteria, SSE has

undertaken preliminary work to assess its

activities using the eligible activities of the EU

Taxonomy as a basis. The table on page 47 

provides an illustration of SSE’s taxonomy

aligned activities. Taxonomy eligible activities

in 2021/22 are from SSE’s onshore and

offshore wind generation, hydro (run of river

and pumped storage) as well as its networks

transmission and distribution activities.

In 2021/22, the proportion of SSE’s

taxonomy-eligible activities across the

different measures were: adjusted operating

profit, 84%; adjusted investment and capital

expenditure, 86%; and, revenue, 30%.

The reason that SSE’s taxonomy-eligible

activity appears low in relation to its

revenue, is primarily due to Energy Portfolio

Management trading activity and the sale of

power to end customers, both of which are

high volumes, with pass through costs and

lower margins than in larger businesses such

as renewables generation and networks

businesses. SSE believes that revenue is a

poor measure in assessing its economic

activity and that the most appropriate

measures of its taxonomy-eligible economic

activity are in relation to its capital

investment and its operating profit.

The taxonomy non-eligible activities are

associated with SSE’s thermal generation

and gas storage businesses. Other activities

that do not currently align may qualify for

taxonomy alignment in the future.

Providing the UK Taxonomy does not

deviate significantly from the EU model,

SSE expects its assessment of its taxonomy

eligible activities disclosed on page 47  to

be consistent with a future UK framework.

FURTHER AND FASTER AT COP26

The cornerstone of SSE’s engagement

with government and regulators in

2021/22 was the Company’s Principal

Partnership with the UK Government

on COP26. SSE was able to showcase

its standing as a national clean energy

champion in what was a significant

stepping up of engagement activity

in the lead-up to, during and after the

Glasgow event. Through more than

150 direct COP-related engagements,

SSE established 50 new business

relationships, received more than 20

public endorsements from stakeholders,

and formed 14 new partnerships.

Crucially, SSE was able to support

a number of COP-linked policy

announcements through its advocacy

for decarbonisation of the energy sector

to go further and faster. In the months

following COP26, positive engagement,

including meetings with the Secretary

of State for Department of Business,

Energy and Industrial Strategy and the

Prime Minister, continued to maintain

political resolve on the Glasgow Pact

and highlight SSE’s role in delivering

national net zero targets.

ENGAGEMENT IN ACTION

GOVERNMENT AND REGULATORS

SSE’s Gregor Alexander and Alistair Phillips-

Davies with Chancellor Rishi Sunak at COP26.

47SSE plc Annual Report 2022

Financial impact of SSE’s taxonomy activities

SSE’s reported

segments (a)

Taxonomy eligible activity(a) Revenue (b)

Adjusted operating

profit (c)

Adjusted investment

and capital

expenditure (d)

£m % £m % £m %

SSEN Transmission Transmission of electricity 589.7 7 380.5 25 614.4 32

SSEN Distribution Distribution of electricity 954.6 11 351.8 23 364.8 19

SSE Renewables Electricity generation 357.4 4 568.1 37 674.3 35

EPM As route to market for SSE Renewables 713.6 8 (5.6) 0 0.8 0

Total taxonomy eligible activities 2,615.3 30 1,294.8 84 1,654.3 86

SSE Thermal Thermal generation 844.2 10 306.3 20 129.3 7

Gas Storage Supply of energy 8.7 0 30.7 2 2.1 0

EPM As route to market for SSE Thermal 713.6 8 (5.6) 0 0.8 0

Taxonomy non-eligible activities 1,566.5 18 331.4 22 132.2 7

Business Energy 2,289.0 27 (21.5) (1) 35.2 2

SSE Airtricity 1,177.3 14 60.4 4 4.6 0

Distributed Energy 176.9 2 (10.9) (1) 26.6 1

EPM As route to market for Business Energy 713.6 8 (5.6) 0 0.8 0

Corporate unallocated 69.7 1 (111.8) (7) 78.7 4

Total taxonomy partially/not-aligned activities 4,426.5 51 (89.4) (6) 145.9 8

Total continuing operations 8,608.2 100 1,536.8 100 1,932.4 100

Notes:

(a) Alignment is based on segmental reporting in SSE’s financial year end statements.

(b) Revenue: derived from the disaggregation of revenue from contracts by customers, in line with the requirements of IFRS 15 “Revenue from Contracts with

Customers” (see note 5.1.1).

(c) Adjusted operating profit/loss: calculated as adjusted operating profit/loss related to the businesses aligned with the taxonomy categories (see note 5.1.2).

(d) Adjusted investment and capital expenditure: calculated as adjusted capital expenditure related to assets or processes associated with taxonomy-eligible

economic activities that is accounted for based on IAS 16, IAS 38 and IFRS 16 and thereby included within adjusted capital expenditure (see note 5.1.3).

Assumptions

SSE’s accounting policies for these calculations are based on the EU

Taxonomy Regulation and delegated acts and available guidelines from

the UK Government.

• Linkage principle

In calculating each taxonomy-eligible proportion, a ‘linkage principle’

has been applied, stipulating that any revenue, operating profit/loss

or capital expenditure that can be justifiably linked to an identified

taxonomy economic activity can be classified as taxonomy-eligible.

Using this principle, revenue and operating profits from SSE’s

balancing activities, hedging, and trading can be linked to the EU

taxonomy eligible activities when the activity is undertaken to directly

support the eligible activities.

• Proxies

Where the financial numbers are not appropriately split into

Taxonomy compliant activities, namely for Energy Portfolio

Management energy trading and power sales activities, a proxy has

been used to estimate the ratio of purchased power volumes from

renewable versus non-renewable assets applied to revenue and

operating profit/loss.

• Materiality

The analysis has been prepared by applying a top-down review of

SSE’s activities and the alignment with existing segmental reporting

within taxonomy eligible activities. There are some activities that fall

below specified thresholds which are not taxonomy eligible. As SSE’s

reporting processes and controls are refined by the implementation

of the UK Taxonomy, it is expected that some activities will be

reclassified if they move above certain materiality thresholds.

• UK taxonomy eligibility

SSE’s transmission and distribution activities do not currently qualify

as EU taxonomy eligible due to the use of Polychlorinated Biphenyls

(PCBs). SSE has committed to removing PCBs within its business

31 December 2025 in line with recent UK legislation. It is therefore

expected that the UK taxonomy will include these activities as

taxonomy eligible.

Revenue Adjusted investment and capital expenditureAdjusted operating profit

Eligible Not eligible Not aligned Eligible Not eligible Not aligned Eligible Not eligible Not aligned

Taxonomy eligible activities at a glance

48 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

Protecting the environment continued

ENGAGEMENT IN ACTION

SHAREHOLDERS AND DEBT PROVIDERS

ENHANCING CLIMATE ENGAGEMENT WITH SHAREHOLDERS

Having worked closely with investor

group Climate Action 100+ over

2020/21, SSE proposed an enabling

resolution to its July 2021 Annual

General Meeting (AGM) asking

shareholders to accept and approve

the Company’s proposal to adopt a plan

to become net zero across its scope

1, 2 and 3 GHG emissions by 2050 or

sooner. The resolution received 99.96%

of the votes cast in favour and

established a framework for SSE to

propose a resolution at each AGM for

shareholders to receive, consider and

express non-binding advisory approval

of SSE’s Net Zero Transition Report. To

aid the vote, SSE published a Net Zero

Transition Plan in March 2022, from

which its Net Zero Transition Reports

will be based. The Plan sets out defined

targets and actions to allow for clear

and simple disclosures which will

facilitate high quality engagement.

Ahead of the 2022 AGM, SSE will

undertake a programme of shareholder

engagement on the Net Zero Transition

Report, which will be published in

June 2022.

SSE’s key developments in

2021/22:

• SSE announced its £12.5bn Net

Zero Acceleration Programme

aligned to its net zero ambitions,

see pages 4 to 5 .

• SSE set accelerated science-based

targets aligned to a 1.5°C pathway,

see pages 54 and 55 .

• SSE reviewed its climate-related

risks and opportunities in its Annual

Report, see pages 50 to 53 .

Material climate impacts

SSE assesses the climate impact on its

operations over the short (up to three

years), medium (four to 10 years) and long

term (up to 30 years) from the perspective

of market, policy or regulatory transition

risks and opportunities and the physical

risks of a changed climate.

Material climate-related opportunities and

risks (pages 50 to 53 ) have the potential

to significantly impact SSE’s business,

strategy and financial planning.

The material opportunities (pages 50

to 51 ) relate to the role that renewables,

transmission and distribution electricity

networks, and thermal play in supporting

the transition to net zero. The material risks

(pages 52 to 53 ) are associated with the

physical impacts of extreme or changing

weather conditions on renewable and

network operations; alongside transition

risks related to renewable wholesale prices

and resilience of thermal power generators

to changing policy.

SSE has aligned its disclosures related to

opportunities to its Net Zero Acceleration

Programme out to 2026, where opportunities

are more certain. Beyond this date a

description of further opportunities has been

provided, though these have not been

quantified due to the inherent uncertainty in

longer-term forecasting. Risks identified have

been quantified based on SSE’s exposure to

the risk as at 31 March 2022.

Further information on each climate-related

opportunity and risk is also presented in

SSE’s Sustainability Report 2022  and CDP

Climate Change Programme submission.

Explaining recommended

disclosure Strategy 2.c

SSE believes it is partially compliant with

TCFD recommended disclosure Strategy

2.c as it describes the resilience of the

organisation to the key identified climate-

related risks on pages 52 and 53 .

However, these risks followed a process of

bottom up analysis and therefore does not

meet the specific requirement to take into

consideration different climate related-

scenarios. SSE is still in the process of

developing appropriate macro enterprise-

level climate scenarios, building on climate

scenario analysis performed in the past,

with a view to complying from 2023. SSE’s

previous reports, Post Paris, published in

July 2017, and Transition to Net Zero,

published in November 2019, assessed the

resilience of SSE’s electricity businesses

and gas businesses to different warming

scenarios respectively. These reports

can be found at sse.com/sustainability

sse.com/sustainability .

49SSE plc Annual Report 2022

Climate-related opportunity

and risk management

Identifying and assessing climate-

related opportunities and risks

SSE’s Group Risk Management Framework

is complemented by a specialist, and

longer-term, TCFD climate-related risk

assessment process that provides the

framework for the identification and

assessment of climate-related

opportunities and risks.

To identify and assess climate-related

opportunities and risks SSE used the

outputs from senior business leader

assessments of climate opportunity and

risk alongside risk assessment workshops

held by business units to test relevance,

materiality and potential financial impact of

climate issues. Following the completion of

these activities a long list of climate-related

opportunities and risks was identified.

To test the relevance of the long list of

climate-related opportunities and risk,

the risk approach used climate-related

trends in the external environment,

stakeholder perspectives (including

regulatory requirements); internal risk

assessment outputs and climate-related

influencing factors in the Group Risk

Management framework.

To test materiality a significance test

was conducted that assessed potential

financial impact and the likelihood of

occurrence for each opportunity and

risk. This assessment led to the definition

of the final list of material climate-related

risks and opportunities for SSE (pages 50

to 53 ).

Managing climate-related

opportunities and risks

SSE has a series of actions that enable it to

realise the climate-related opportunities

and has a set of controls and financial

mitigations in place to reduce the climate-

related risks. This risk management section

(pages 49 to 53 ) combined with SSE’s

Sustainability Report 2022 and CDP

Climate Change response provides further

information on these actions and controls.

Integrated climate-related

risk assessment

SSE’s Group Risk Management Framework

(page 161 ) ensures the management of

risks that can threaten the achievement of

SSE’s strategic objectives, including those

that are related to climate change. Climate

Change is one of SSE’s Group Principal

Risks, with scenarios related to both

physical and transition risks posed by

climate change included as part of SSE’s

viability assessment (page 70 ). Climate-

related influencing factors and key

developments continue to be considered

against all relevant Group Principal Risks

(pages 71 to 81 ).

Meeting TCFD recommended

disclosures:

3. Risk Management

a) Describe the organisation’s

processes for identifying and

assessing climate-related risks.

b) Describe the organisation’s

processes for managing climate-

related risks.

c) Describe how processes for

identifying, assessing, and managing

climate-related risks are integrated

into the organisation’s overall

risk management.

SSE’s key developments in

2021/22:

• Group Risk Committee approves

the process and controls of

SSE’s climate-related risk and

opportunities, see page 44 .

• SSE’s climate-related physical

risks were assessed as part of the

Group Risk Management process,

see pages 68 to 81 .

• SSE achieved an ‘A’ for its CDP

Climate Change disclosure,

which provides detail on its

TCFD disclosures. See sse.com/

sustainability  for the submission.

Material climate-related opportunities and risks

The following tables, on pages 50 to 53 , present SSE’s quantification of the potential financial impact of its material climate-related

opportunities and risks. More detail to these disclosures is presented in SSE’s CDP Climate Change Programme submission 2022.

For the opportunities and risks identified, where relevant, SSE has outlined the time frame for investment in climate-related activities as

well as the time frame for the impact of that investment, when the benefits will be realised. The time frames are:

• Short term (up to three years)

• Medium term (four to 10 years)

• Long term (up to 30 years)

These time frames have been determined based on a number of factors, including: SSE’s Net Zero Acceleration Programme; market,

policy and regulatory frameworks; and forecasted physical impacts of climate change.

50 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

Protecting the environment continued

Climate-related opportunities

VALUABLE FLEXIBLE HYDRO

Investment: Medium term

Impact: Medium/long term

Context of the opportunity

Increasing volumes of intermittent wind energy will require support from flexible generators that provide system services, such as

short-term reserve, frequency and long-duration energy storage services. The opportunity exists, from existing hydro expertise, to

develop long-duration, low-carbon flexibility solutions that provide significant enduring value to the GB electricity system.

How SSE can realise this opportunity Potential financial impact

For SSE’s existing hydro portfolio, ongoing investment in

maintenance, upgrades and repowering will optimise the

provision of low carbon flexibility.

SSE also has an important development option for large-scale,

long-duration pumped hydro storage at Coire Glas in Scotland,

with planning consent for a 1.5GW capacity project and

c.30GWh of storage capacity potential. This would more than

double existing pumped hydro storage capacity in GB. SSE is

working with Government and the regulator to establish a market

mechanism that would unlock investment into long-duration

storage projects such as Coire Glas given the critical role they

can play in securing low-carbon energy supplies in the UK.

SSE’s current hydro generation capacity of 1.5GW had an adjusted

operating profit of £293.1m and adjusted EBITDA of £324.7m in

the year ended 31 March 2022. In 2021/22 SSE invested c.£50m

on existing hydro asset maintenance and repowering.

Early-stage development expenditure is already being incurred on

Coire Glas, with the total capital cost for development expected to

be in excess of £1bn. The timing of that investment, and returns

generated, will depend on the emergence of suitable market

mechanisms to stimulate this investment in long-duration storage.

ACCELERATED TRANSMISSION GROWTH

Investment: Medium term

Impact: Medium/long term

Context of the opportunity

Significant growth in renewable wind in the north of Scotland requires significant expansion of the north of Scotland electricity

transmission network, to transport the renewable electricity from the sources of generation to the sources of demand. In April 2022,

the UK Government set out in the British Energy Security Strategy that it would ensure Ofgem expedites its approvals process to

build networks in anticipation of major new sources of generation and demand. This is demonstrated by the Scottish Government’s

proposed target of 8-12GW of additional onshore wind by 2030, announced in November 2021, and the Crown Estate Scotland

award of seabed leases in January 2022 of c.25GW of new offshore wind capacity.

How SSE can realise this opportunity Potential financial impact

SSEN Transmission’s current RIIO-T2 business plan to 2026

envisages expanding and reinforcing the existing network for

major new sources of generation. Regulatory approvals are

in-flight for further projects such as reinforcements to Skye,

Argyll and the Eastern HVDC offshore link which will connect

the North of Scotland directly to demand centres in England.

Beyond the current business plan, SSEN Transmission is working

closely with stakeholders to determine the network expansion

required to meet Government ambitions and new development

projects. This will determine the scale of investment required in

the next regulatory price control (2026 and 2031).

The latest RIIO-T2 Price Control Financial Model, submitted

to Ofgem in November 2021, envisages spending at least £4bn

to expand and reinforce the existing network, with regulator-

approved projects that are in-flight. With this investment, the

Regulated Asset Value (RAV) of SSEN Transmission is expected to

reach in excess of £6.5bn by the end of the price control (2026).

Between 2026 and 2031 it is expected that RAV will reach

between £8-10bn and there is the potential, if the additional

expenditure is agreed, for RAV to reach £12bn in this time period.

SSEN Transmission earns a return on its RAV, therefore growth

of the RAV should result in earnings growth in future periods,

subject to future regulatory earnings agreements.

51SSE plc Annual Report 2022

ACCELERATED WIND INVESTMENT

Investment: Medium term

Impact: Medium/long term

Context of the opportunity

International agreements to decarbonise electricity systems, alongside increased energy security and the need to reduce reliance

on imported fossil fuels enhance the case for accelerated wind deployment. The UK Government has ambitions for up to 50GW of

installed offshore wind capacity by 2030 (including up to 5GW of floating offshore wind) and the Irish Government has targeted 4GW

of incremental onshore wind and 5GW of offshore wind capacity by 2030. In the long term, the Climate Change Committee’s

balanced net zero pathway suggests 95GW of UK offshore wind by 2050.

How SSE can realise this opportunity Potential financial impact

SSE aims to build a renewable energy portfolio that generates

at least 50TWh of electricity a year by 2030. SSE’s accelerated

capital investment plan (the Net Zero Acceleration Programme)

published in November 2021 aims to double installed renewable

capacity to 8GW (net) by 2026 and targets at least 13GW (net) of

installed renewable capacity by 2026. In the longer term, SSE is

exploring opportunities in the UK, Ireland and internationally.

SSE’s existing wind generation portfolio (2.5GW capacity) had

an adjusted operating profit of £275.1m and adjusted EBITDA of

£470.4m in 2021/2022. Between 2021 and 2026, SSE’s Net Zero

Acceleration Programme plans to invest over £4bn in c.4GW

(net) of new wind capacity, supporting a target of c.9GW (net) of

new wind capacity by 2031. This planned investment is expected

to significantly contribute to an 11-12% EBITDA compound

annual growth rate in renewables across the five-year period.

DRIVING DISTRIBUTION TRANSFORMATION

Investment: Medium term

Impact: Medium/long term

Context of the opportunity

The UK Government’s Net Zero Strategy accelerates the shift to zero emission vehicles, banning new petrol or diesel cars from 2030.

National Grid’s Future Energy Scenarios (2021) anticipates 12 million electric vehicles and 4 million residential heat pumps in GB in

2030. Depending on the scenario, there is potential for a five to ten-fold increase in annual load spend between now and 2038.

How SSE can realise this opportunity Potential financial impact

SSEN Distribution’s draft RIIO-ED2 business plan for the period

2023 – 2028 establishes an investment and innovation

programme that will enable customers to connect their electric

vehicles reliably to local electricity grids. To predict the scale of

connections Distribution Future Energy scenarios suggest that

between 2020 to 2030, the number of EVs in SSEN’s Distribution

areas may increase from 30,000 to 0.85-2.3 million and for heat

pumps from under 50,000 to 0.27-1.05 million.

Over the RIIO-ED2 period to 2028, SSEN Distribution expects to

invest c.£4bn in distribution networks resilience and reinforcement.

This is expected to increase RAV to c.£5.5bn by 2026 with a further

£7-8bn by 2031, subject to regulatory determination and required

future load spend. SSEN Distribution earns a return on its RAV,

therefore growth of the RAV should result in earnings growth in

future periods, subject to future regulatory earnings agreements.

VALUABLE FLEXIBLE THERMAL

Investment: Medium term

Impact: Medium/long term

Context of the opportunity

As the electricity system decarbonises, increasing volumes of intermittent wind energy requires support from flexible generators

that provide system services, such as short term reserve, frequency, security of supply and price stability. There is the opportunity

to repurpose SSE’s existing gas-powered electricity generators, as well as invest in new low-carbon thermal generation assets. The

UK Government’s 10 point plan for a Green Industrial Revolution involves a £1bn fund to facilitate CCS deployment in two industrial

clusters by the mid-2020s and a further two by 2030 and a Net Zero Hydrogen Fund with £240m up to 2024/25.

How SSE can realise this opportunity Potential financial impact

SSE is developing plans to support the UK’s transition to net zero

and accelerate the decarbonisation of some of the UK’s most

carbon intensive regions. SSE is progressing projects in the UK

cluster sequencing pro-gramme with carbon capture power

plants at Keadby in the Humber and Peterhead in the North of

Scotland. SSE is also developing plans for a hydrogen power

plant at Keadby and repurposing its Aldbrough Gas Storage site

for the safe storage of hydrogen.

SSE’s Net Zero Acceleration Programme seeks to invest £0.6bn in

low-carbon flexible thermal generation, mainly carbon-capture

technology but with some development investment in hydrogen

projects ahead of potential investment decisions in the second

half of the decade. Returns from CCS and hydrogen will depend

on the level and nature of government support mechanisms, and

plant availability, future consumer demand, generation supply

mix within the system and energy commodity price volatility.

52 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

Protecting the environment continued

VARIABLE WIND GENERATION RISK Impact: Short/medium/long term

Factors that impact business

Longer term changes in climate patterns cause sustained higher temperatures that may result in lower rainfall and reduced wind

levels. These changes may impact SSE’s renewable output and associated earnings. Weather variability is a perennial feature of risk

for SSE as the largest generator of renewable electricity in UK and Ireland.

Potential impact to SSE Potential financial impact

SSE’s long-term monitoring of weather changes and current

forecasts, established that a plausible scenario of significantly

below-average rainfall and low wind combined may result in

reduced renewable generation output and associated earnings.

In the first half of 2021/22 this risk played out, as SSE experienced

one of the driest and calmest summer periods (April to September)

on record. By the end of September 2021, Renewable volumes

were 30% below plan. Some of this volume was recovered during

the winter period, with Renewable volumes ending the year c.13%

down on plan.

For the future, it is expected that given SSE’s planned trebling

of renewables capacity by 2031 that this risk will continue to

impact SSE.

The impact of this dry and calm period in this financial year was

a reduction to adjusted operating profit from plan of c.£140m

through the summer period. While the business recovered some

of the volume through the second half of the financial year, the

financial result for the year was c.£130m below plan.

Further significant and sustained weather patterns similar to this

could impact the recoverable value of the assets. A sensitivity to

the wind goodwill impairment model was performed with a 15%

adverse volume variance, which indicated significant headroom

on the carrying value of the assets (see note 15).

There is still potential for events such as those that took place

in 2021/22 to occur in the future, and therefore this remains

a potential financial impact to SSE Renewables in the short,

medium and long term.

STORM DAMAGE NETWORK RISK Impact: Short/medium/long term

Factors that impact business

Increased severity of extreme weather events, such as storms, floods and heat waves bring prolonged extreme temperatures, wind

or rainfall. This may damage or stress network assets resulting in additional costs to repair and maintain the network and the loss of

incentive revenue for distribution operators.

Potential impact to SSE Potential financial impact

The impact of weather is a perennial feature of operating an

electricity distribution network in the north of Scotland and

south of England. In an exceptional 2021/22 winter season,

seven storms were named by the Met Office including three,

Storm Arwen, Storms Malik/Corrie and Storms Eunice/Franklin

that became Red Alert events, the most in any year since SSE’s

records began. Each of these events impacted over 100,000

customers, with a significant number for a multi-day period.

Future climate models predict that climate change will continue

to bring extreme events such as storms, floods and heatwaves

which will impact network assets.

Although the impact on the Interruptions Incentive Scheme (IIS)

revenue is mitigated during the most severe weather events,

there are significant additional costs incurred through the

provision of compensation, customer welfare and upweighted

operational requirements. In 2021/22, the total cash expenditure

incurred on storm responses was £45m, including £18.7m in

enhanced guaranteed standards compensation payments, up

from the mandated £13.3m, reflecting the extreme nature of the

impact on customers.

It is recognised that 2021/22 brought ‘once in a generation’ levels

of impact and disruption, but with climate impacts accelerating the

potential remains for similar events to occur across the network in

the short, medium and long term, resulting in potential financial

impact. As SSE invests in its networks infrastructure, the impacts

of climate change are being built into its capital and operational

investment plans, including a Climate Resilience Strategy published

as part of the RIIO-ED2 Distribution business plan.

Climate-related risks

53SSE plc Annual Report 2022

ACCELERATED GAS CLOSURE RISK Impact: Medium term

Factors that impact business

More aggressive climate change policy may bring forward the closure of unabated gas generation from 2030. The UK Government’s

Net Zero Strategy outlines plans to decarbonise the power sector by 2035 with a target of 95% of GB electricity to be low carbon by

2030. It is plausible that to meet climate change commitments the UK Government (and potentially the Irish Government too) may

strengthen climate change policies to require unabated gas generation to cease in the 2030s.

Potential impact to SSE Potential financial impact

SSE’s existing 5.3GW fleet of installed gas- and oil-fired generation

will be nearing the end of its expected life by the end of the 2020s.

However, 2.3GW of Combined Cycle Gas Turbine (CCGT) capacity

will still be in operation in 2030.

It is a plausible scenario that this capacity will not be able

to generate beyond 2030 without low-carbon abatement

technology. For assets currently assumed to have a life beyond

2030, it is possible that SSE could invest further in low-carbon

abatement technology to prolong their life beyond this date.

However, for the purposes of quantifying this risk, it is assumed

that the financial impact of this policy change is the early closure

of the remaining gas assets in 2030.

Due to market conditions during FY21/22, the short term value of

these assets has increased, resulting in the reversal of historic

impairments to unabated gas plant of £331.6m. Following this

impairment reversal, the value of unabated gas plant as of 31 March

2022 was £1.1bn. This includes Keadby 2, Great Island and legacy

GB CCGTs. Of SSE’s legacy CCGTs, the current financial

assumption is that these will either close by 2030, or SSE will not

have a carrying value in the joint venture investment beyond 2030.

The potential impact of this policy change to SSE’s impairment

model at 31 March 2022 would be an impairment of £41.5m to

Great Island and no impairment to Keadby 2 if it were assumed

these plant would close in 2030 (see note 15). In addition to an

impairment charge, SSE’s decommissioning provisions would

reduce by £8.4m at 31 March 2022 if the forecast closure date

was brought forward (see note 20).

WIND-CAPTURE MARKET RISK Impact: Medium term

Factors that impact business

In net zero consistent scenarios, the price wind energy can capture is forecast to reduce as more marginal cost wind generation is

connected.

All credible pathways to net zero in the UK and beyond assume the dramatic scaling up of wind (especially offshore) generated

electricity. This significant growth in wind power output without a corresponding increase in demand represents a potential climate-

related transition risk. As wind generation capacity increases, the market (and SSE) expects the average electricity price which wind

power receives (‘wind capture price’) to be less than the average price for electricity (‘baseload price’). As wind becomes the dominant

source of electricity output it will define the market price, so the volatility of electricity prices correlates to wind output, both high and

low. While this is expected in the medium term, and is factored into investment decisions, there is a risk that this lower average price

for wind output is more extreme than what the market (or SSE) expects. In the long term, and with careful market design reform, the

effect of the wind capture price will stabilise as more low carbon technologies adapt their patterns of demand according to the price

signal sent by the market. In its British Energy Security Strategy, the UK Government committed to a Review of Electricity Market

Arrangements which will seek, among other things, to ensure future low-carbon generation is fairly remunerated.

Potential impact to SSE Potential financial impact

The effect of a wind capture price only materially impacts wind

generation that is fully exposed to market prices (or ‘merchant’

wind output), as it is not supported by government-backed fixed

price mechanisms such as the Contracts for Difference.

Assuming a build out rate of wind generation assets in SSE’s

renewable project pipeline page 85 , it is assumed there

will be 10TWh of merchant wind output in 2029/30.

The scale of any impact of a change to the expected wind capture

price would therefore be a function of the assumed wind capture

price and the amount of merchant wind electricity generated.

The book value of the Group’s wind assets at 31 March 2022 is

£4.0bn. A sensitivity to the wind goodwill impairment model was

performed with a sustained 10% reduction to wind capture price.

This sensitivity scenario indicated significant headroom on the

carrying value of the assets (see note 15).

54 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

Protecting the environment continued

Targeting improved climate performance

Increasing climate ambition

In 2021/22 SSE announced more stretching

climate targets, ensuring its ambitions

continue to align to the developing climate

science. SSE is now targeting net zero GHG

emissions across its scope 1 and scope 2

emissions by 2040 (subject to security of

supply requirements) and for remaining

scope 3 emissions by 2050.

On its pathway towards its longer-term net

zero ambitions, SSE has a series of carbon

targets which are approved by the Science

Based Targets Initiative (SBTi). Originally set

in April 2020, these targets were aligned to

a ‘well below 2°C’ pathway which was the

most stretching pathway for the power

sector available from SBTi at the time. Since

then, the SBTi has published a new pathway

for the power sector, allowing electric

utilities to set science-based targets in line

with a 1.5°C pathway. In November 2021,

SSE announced updated targets aligned to

this new 1.5°C pathway and approved by

the SBTi. Progress against these more

stretching SBTi-approved targets is detailed

within this section and makes up part of

SSE’s progress against its Net Zero

Transition Plan.

In October 2021, SSEN Distribution became

the first UK Distribution Network Operator

to set science-based targets in line with a

1.5°C pathway, verified by the SBTi. These

targets play an important role in supporting

the SSE Group’s net zero ambitions,

alongside the 1.5°C-aligned, SBTi-approved

carbon targets set by SSEN Transmission in

August 2020.

GHG emissions performance

In 2021/22, SSE’s total GHG emissions

consisted of 58% scope 1 emissions, 5%

scope 2 emissions and 37% scope 3

emissions.

Carbon performance table

This table, taken in conjunction with the energy use information in the Energy use table

on page 57 , represents SSE’s disclosures in line with the UK Government Streamlined

Energy and Carbon Reporting requirements. It details SSE’s direct and indirect GHG

emissions (scopes 1, 2 and 3) performance (measured in million tonnes of carbon dioxide

equivalent – MtCO

e), provided as total emissions as well as split out by UK and Irish

activity. It also provides a carbon intensity measure based on direct GHG emissions

released for each unit of electricity SSE produced. For more information on SSE’s GHG

emissions data and how it is produced, see SSE’s GHG and Water reporting criteria

available at sse.com/sustainability .

Unit 2021/22 2020/21

Total GHG emissions MtCO

9.93

(A)

11.03

(B)

Scope 1 GHG emissions –

total (UK/Ire)

MtCO

5.75

(A)

(4.22/1.53)

7.10

(B)

6.00/1.10

Scope 2 GHG emissions –

total (UK/Ire)

MtCO

0.49

(A)

(0.49/<0.01)

0.54

(B)

(0.54/<0.01)

Scope 3 GHG emissions –

total (UK/Ire)

MtCO

3.69

(A)

(2.86/0.83)

3.39

(B)

(2.66/0.73)

Scope 1 GHG emissions intensity gCO

e/kWh

259

(A)

256

Total renewable generation

output

– total (UK/Ire)

GWh

8,799

(7,602/ 1 ,197)

9,649

(8,295/1,354)

Total non-renewable generation

output

– total (UK/Ire)

GWh

13,356

(10,394/2,962)

18,045

(15,612/2,433)

Total generation output –

total (UK/Ire)

GWh

22,155

(17,996/4,159)

27,694

(24,014/3,680)

1 Totals include pumped storage and biomass output, and exclude GB constrained off wind.

2 Includes 100% output from Seabank power station up to 31 September 2021 when SSE’s power purchase

agreement to purchase ended, and then excludes output from SSE’s 50% ownership share from October

2021 onwards.

(A) This data was subject to external independent assurance in 2022. The Limited Assurance Report can be

found at sse.com/sustainability .

(B) This data was subject to external independent assurance in 2021. The Limited Assurance Report can be

found at sse.com/sustainability .

Meeting TCFD recommended

disclosures:

4. Metrics and Targets

a) Disclose the metrics used by the

organisation to assess climate-

related risks and opportunities

in line with its strategy and risk

management process.

b) Disclose Scope 1, Scope 2, and,

if appropriate, Scope 3 greenhouse

gas (GHG) emissions, and the

related risks.

c) Describe the targets used by the

organisation to manage climate-

related risks and opportunities

and performance against targets.

SSE’s total GHG emissions decreased by

10% between 2020/21 and 2021/22. The

most material contributing factor was the

reduction in energy demand as a result of

market conditions and the weather which

led to this reduction in GHG emissions.

Although SSE’s GHG emissions fell over

2021/22, the impact of weather and

demand can create exceptional years of

change. SSE’s overall strategy is to cut GHG

emissions in line with its 1.5°C-aligned

carbon targets and its 2030 Goals.

Between 2020/21 and 2021/22, GHG

emissions arising from electricity generation

fell by 19%. These emissions continue to

make up 99% of SSE’s scope 1 emissions.

This was predominantly a result of two

factors:

1. The ending of SSE’s power

purchase agreement contract with

Seabank gas-fired power station on

30 September 2021. As a result 50% of

emissions from this power station are

now reported in SSE’s scope 3 GHG

emissions category, based on SSE’s

ownership share; and

2. Output from SSE’s thermal generation

plant* was 26% lower compared to

the previous year, due to planned

and unplanned outages and market

conditions.

* Includes 100% output from Seabank power

station up to 31 September 2021 when SSE’s

power purchase agreement to purchase ended,

and then excludes output from SSE’s 50%

ownership share from October 2021 onwards.

55SSE plc Annual Report 2022

Generation output (GWh)

Scope 1 GHG emissions

(million tonnes CO

17/18

5,000

10,000

15,000

20,000

25,000

30,000

35,000

40,000

18/19 19/20 20/21 21/22

SSE’s total scope 1 and 2 GHG emissions

combined were 6.24MtCO

e in 2021/22,

an 18% reduction from the previous year

and 44% reduction from the 2017/18 base

year of SSE’s SBTi-approved carbon target

to reduce absolute scope 1 and 2 GHG

emissions by 72.5% between 2017/18 and

2030. Overall, SSE’s scope 1 and 2 GHG

emissions have reduced significantly

compared to the base year, reflecting lower

output from thermal power stations and

the closure of SSE’s last coal-fired power

plant in March 2020.

Total scope 3 emissions increased by 9%

between 2020/21 and 2021/22. This is due

to the inclusion of 0.3MtCO

e emissions

from Seabank gas-fired power station from

October 2021 onwards. Previously, the

power purchase agreement between

Seabank and SSE required emissions

associated with Seabank to be accounted

as scope 1 emissions. From the end of the

power purchase agreement in September

2021, the emissions from Seabank are

defined as scope 3 emissions according to

SSE’s continuing 50% ownership share.

GHG emissions from gas sold to

customers, which contribute 62% of SSE’s

scope 3 emissions in 2021/22, decreased

by 3%. This was a result of lower market

demand. This means GHG emissions

from gas sold have reduced by 10% from

2017/18. SSE’s SBTi-approved target is to

reduce GHG emissions from gas sold by

50% between 2017/18 and 2034.

Change in SSE’s scope 1 and 2 GHG

emissions since 2017/18

-44%

Scope 1 GHG emissions intensity

SSE’s scope 1 GHG emissions intensity

increased by 1% to 259gCO

e/kWh from

256gCO

e/kWh the previous year. There

are a series of factors that contribute to the

calculation of carbon intensity.

Output from SSE’s renewable generation

portfolio (inc. pumped storage and

biomass) fell to 8.8TWh in 2021/22, from

9.6TWh the previous year. This was driven

by exceptionally still and dry weather

conditions, with the summer of 2021 being

one of the least windy across most of the

UK and Ireland and one of the driest in SSE’s

Hydro catchment areas in the last 70 years.

Output from SSE’s thermal generation

also fell, and by a greater extent than for

renewables output. This meant that the

proportion of total generation output

contributed to by renewable generation

increased to 40% from 35% in 2020/21.

The fall in thermal output did not result in

a corresponding fall in the GHG emissions

intensity, because there was increased

generation output from the most intensive

generating plant in SSE’s portfolio, including

from carbon intensive peaking plant in

Ireland.

SSE remains on track to achieve its

SBTi-approved target to reduce scope 1

GHG emissions intensity by 80% between

2017/18 and 2030, having reduced it by

16% in 2021/22 from the 2017/18 base year

levels of 307 gCO

e/kWh.

Change in SSE’s scope 1 GHG emissions

intensity since 2017/18

-16%

Working with supply chain

partners to drive climate action

One of SSE’s SBTi-approved targets is to

engage with 50% of suppliers (according to

financial expenditure) to set their own

science-based targets by 2024. Following on

from the workshops held in 2020/21, which

facilitated dialogue around science-based

targets, during 2021/22, SSE continued to

engage with key suppliers through direct

engagement and hosted a live webinar,

in partnership with the Supply Chain

Sustainability School, on the topic of

carbon. At 31 March 2022, 48% of SSE’s

suppliers (by value) had set or committed

to set their own science-based targets

through the SBTi. Over 2021/22, SSE and

CDP Supply Chain collaborated to deliver

its first supplier webinar focusing on carbon

reporting, which reached over 50 key

suppliers and contributed to the highest

supplier response rate SSE has had since

beginning supply chain reporting.

SSE’s key developments in

2021/22:

• SSE total scope 1 GHG emissions

reduced by 10%, see page 54 .

• SSE’s Net Zero Transition Plan sets

it GHG targets and actions, see

sse.com/sustainability .

• SSE’s Net Zero Transition Report

summarises SSE’s disclosed

progress against its Net Zero

Transition Plan, see sse.com/

sustainability .

GENERATION OUTPUT AND SCOPE 1 GHG EMISSIONS

Renewables output Coal output Gas and oil output* Multifuel output

Scope 1 GHG emissions

* In 2021/22, oil-fired generation output contributed around 6% of gas and oil output.

56 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

Protecting the environment continued

A strategy for environmental

protection

While SSE’s GHG emissions are its most

material environmental impact, it also has

wider impacts on the natural world that

must be carefully managed. SSE considers

these environmental impacts through its

Environment Strategy, which sits within

SSE’s sustainability hierarchy outlined on

page 39 . The strategy is founded on

robust environmental management and

governance, with three core environmental

SDGs providing the framework for

sustainable environmental development:

SDG14 Life Below Water; SDG15 Life Above

Land; and, SDG12 Responsible

Consumption and Production.

Detail on SSE’s environmental impacts and

how it is managing them is outlined in this

section, as well as in SSE’s Sustainability

Report 2022 .

Protecting the natural

environment

SSE operates in some of the UK and

Ireland’s most remote areas which are

home to a wide variety of valuable

ecosystems and habitats. It works to

manage its impacts of its activities to

ensure it protects and, where possible

enhance these environments.

All of SSE’s Business Units have signed

up to no net loss in biodiversity by 2023

and net gain in biodiversity by 2025 on

onshore Large Capital Projects. As part

of its approach to biodiversity net gain,

SSEN Transmission is implementing

its optioneering toolkit which allows

consideration of biodiversity at the earliest

stages of development and which has won

a number of external awards.

With the increasing focus on how to

effectively value nature, which has included

the publication of the Taskforce for

Nature-related Finance Disclosures (TNFD)

Beta framework in March 2022, SSE is closely

monitoring developments in this area and

is now a member of the TNFD Forum, a

multi-disciplinary consultative group of over

350 members, to help inform its next steps.

You can read more about SSE’s initiative

to protect and enhance the natural

environment in its Biodiversity Report and

Sustainability Report 2022 .

Managing water use

Water plays a significant role in SSE’s

operations, being used in the energy

production process including as a coolant

in power stations and a source for power

generation in hydroelectric generators. SSE

also uses water as an amenity in its buildings.

SSE has robust policies and processes in

place, and works closely with environmental

regulators, to ensure that it uses water in a

sustainable way in its operations. SSE has an

ongoing investment programme within its

hydro operations to improve efficiency,

enhance water capture and minimise spill

from its plant. None of SSE’s thermal and

hydro generation assets impact on water

stressed areas, as defined by the relevant

environmental regulators in the jurisdictions

in which they operate.

In 2020/21, total water abstracted by SSE

fell to 23,896 million m

from 26,032

million m

the previous year. This was

largely due to a reduction in water passing

through SSE’s hydro generation plant as a

result of lower levels of rainfall compared

to the previous year. The vast majority (97%)

of water abstracted in 2021/22 was used in

SSE’s hydro generation operations. This

water is technically recorded as abstracted,

but it passes through turbines to generate

electricity and is returned to the

environment almost immediately,

and therefore has minimal environmental

impact. To help stakeholders to understand

a more proportionate environmental

impact, water abstracted volumes are

also provided in the table excluding hydro

generation data. SSE’s total water abstracted

excluding hydro operations also fell over

this period. This was predominantly due to

a reduction in thermal generation output

which resulted in a corresponding fall in

water abstracted.

2020/21 2021/22

13.6 1.9

777

819

Fresh water (rivers and groundwater)

Brackish and estuarine water

Total water abstracted by SSE (excluding

hydro generation) (million m

)

Total water consumed also fell significantly

over this period, by over 78%. This was due

to reduced output from thermal generation

overall, as well as a proportional reduction

in the output from thermal power plant with

cooling systems that have evaporative

losses of water.

Conserving the

natural environment

Unit 2021/22 2020/21

Water use

Total water abstracted Million m

23,896

(A)

26,032

Total water abstracted

(exc. hydro generation)

Million m

779

832

Freshwater abstracted (rivers and groundwater)

(exc. hydro generation)

Million m

1.9

13.6

Total water returned Million m

23,895

(A)

26,028

Total water consumed Million m

0.8

(A)

3.9

(A) This data was subject to external independent assurance in 2022. For the limited assurance opinion

see sse.com/sustainability .

* This data was subject to external independent assurance in 2021. In 2021/22, additional data points and

minor amendments to methodologies has resulted in some 2020/21 figures being restated. For the

Limited Assurance Report see the limited assurance opinion see sse.com/sustainability .

57SSE plc Annual Report 2022

SSE’s energy consumption

Between 2020/21 and 2021/22, the energy

SSE purchased for use in its assets (offices,

depots, thermal power stations, gas storage

facilities, and data centres) fell by around

16%, from 234GWh to 196GWh.

Energy consumed in SSE’s thermal power

stations and gas storage facilities fell by

17% compared to 2020/21. This was largely

due to a fall in electricity consumed at

the now closed Fiddler’s Ferry coal-fired

power station, as decommissioning activity

reduced, and a reduction in energy

consumption at SSE’s Aldborough gas

storage facility.

Energy consumed in SSE’s offices, depots

and data centres also fell slightly. Despite

an increase in numbers of employees

working from home due to the pandemic,

energy consumption in SSE’s facility

managed offices has not reduced

significantly due to the need to maintain

buildings to meet heating and ventilation

industry and government guidelines for

the safe operation of buildings.

During 2021/22, SSE invested in a range

of energy efficiency measures including

a programme of LED lighting upgrades to

depot sites. Over this period, SSE purchased

100% of its electricity for use in its facility

managed offices from renewable sources,

backed by renewable guarantees. In

2020/21, 39% of the electricity that SSE

purchased for its assets was from renewable

sources, up from 29% the previous year.

SSE’s ‘Better Off’ behaviour change

campaign, alongside its investment of

£12.8m since 2011/12 in energy efficiency

and building renewable generation

programmes, has helped to reduce carbon

emissions from energy used in its facility

managed offices by 42% since 2017/18.

SSE is a member of the Climate Group’s

EP100 initiative to encourage businesses to

double energy productivity associated with

office and depot buildings by 2030 from a

2011 baseline. From 1 April 2022 onwards

SSE will revise its annual reduction target to

7.19% against a 2020/21 baseline, to align

with its ambition of achieving a net zero

non-operational buildings (offices, depots

and data centres) estate by 2035.

Unit 2021/22 2020/21

Energy use*

Purchased heat from non-renewable sources

– UK/Ire

GWh

3.3/0.08

(A)

3.6/0.14

Purchased electricity from renewable sources

– UK/Ire

GWh

73.3/0.98

87.3/0.9

Purchased electricity from non-renewable

sources – UK/Ire

GWh

118.6/0

142.4/0

(A) This data was subject to external independent assurance in 2022. For the limited assurance opinion see

sse.com/sustainability .

* This information, taken in conjunction with the Carbon performance summary table on page 54 ,

represents SSE’s disclosures in line with the UK Government Streamlined Energy and Carbon

Reporting requirements.

Unit 2021/22 2020/21

Air emissions

Sulphur dioxide (SO2) – thermal generation Tonnes 3,021 1,378

Nitrogen oxide (NOx) – thermal generation Tonnes 4,573 4,106

Sulphur hexafluoride (SF6) – thermal generation

and electricity transmission and distribution

activities

305

295

Particulates emissions (PM10) from thermal

generation assets Tonnes 277 182

Mercury emissions from thermal generation

assets

1.9

19.5

Managing air emissions

In 2020/21, SSE’s thermal generation sites

emitted 4,573 tonnes of nitrogen oxides

(NOx), compared 4,106 tonnes the previous

year, an increase of around 11%. Emissions

of sulphur dioxide (SO

) more than doubled

to 3,021 tonnes, from 1,378 tonnes the

previous year. In addition, particulate

emissions (PM10) rose to 277 tonnes, from

182 tonnes in 2020/21, and mercury

emissions to air decreased significantly

from 19.5kg in 2021/21, to 1.9kg in 2021/22.

The rising trend across three of these key

air emission sources, reflects the increased

demand for oil-fuelled peaking plant in

Ireland that arose as a result of the need

to balance the grid.

In 2021/22, SSE’s sulphur hexafluoride (SF

)

emissions increased slightly to 305kg from

295kg the previous year. SF

is widely used

by the electricity industry around the world

due to its insulating properties and

therefore its ability to keep people safe

from electrical ‘arcing’, however it is a

potent greenhouse gas (GHG). SSE has a

number of initiatives to reduce GHG

emissions from SF

in its networks,

including working with suppliers to install

-free alternatives across its electricity

transmission network. You can read more

about what SSE is doing to reduce the

impact of SF

in its business activities in its

Sustainability Report 2022  and its Net

Zero Transition Plan.

Data assurance and

environmental metrics

SSE takes an integrated approach

towards assurance utilising internal

audit and external assurance

providers to ensure accurate,

complete disclosures. Where data has

been externally and independently

assured, this has been noted in the

relevant tables. In all other areas,

data is identified and disclosed

according to SSE’s internal processes,

guided by environmental regulations

where appropriate.

58 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

Following its publication of the world’s first

company Just Transition Strategy, SSE has been

ranked top in the World Benchmarking Alliance’s

just transition assessment. Continued leadership

on a transition to net zero which happens in a way

that is fair and just for workers, communities and

consumers is a key strategic objective for SSE.

SSE’s social

contribution

Contribution to GDP and jobs

With a £12.5bn Net Zero Acceleration

Programme, the way this money is invested

can deliver significant economic benefits

to communities and businesses in the

places SSE operates within. To understand

its wider socio-economic contribution,

SSE has commissioned PwC to measure

the value it adds to GDP and the jobs it

supports across the Scottish, UK and Irish

economies for the last 11 years. In total

over 2021/22, SSE added £5.8bn to UK

GDP, of which over £2bn was in Scotland,

and €438m to Irish GDP. While the

contribution to Irish GDP was consistent

with last year (2020/21: €439m), this

represents an increase of 36% increase in

the Scottish GDP contribution (2020/21:

£1.5bn) and a 12% increase in the UK GDP

contribution (2020/21: £5.2bn), driven by

SSE’s major investments in projects like

Dogger Bank, Seagreen and Viking wind

farms. SSE supported a total of 47,130 jobs

across the UK and Ireland in 2021/22.

SSE also publishes socio-economic

analysis for individual projects. Over

2021/22, SSE published reports on the

socio-economic impact of Keadby 3

and Peterhead 2 CCGT plants. All socio-

economic reports for the SSE Group

and at a project-level can be found on

sse.com/sustainability/reporting .

Paying a fair share of tax

SSE has long recognised that paying

a fair share of tax is part of its social

licence to operate and right to make a

profit. SSE has been accredited with the

Fair Tax Mark since 2014. This means the

Fair Tax Foundation has independently

assessed it as having a responsible and

transparent approach to paying tax,

and that SSE explicitly rules out the use

of tax havens or an aggressive approach

to tax avoidance.

Over 2021/22, SSE’s total tax contribution

was £944m, split between £375m in taxes

paid (including £70m paid in corporation

tax) and £569m in taxes collected. This

is a decrease of 5.5%, 5.6% and 5.4%

respectively compared to 2020/21. This

small reduction was the result of three

key drivers: (1) 2020/21 tax figures include

the tax contribution from SSE Contracting

over the full financial year, whereas the

disposal of this business in 2021/22

means that the tax contribution from

SSE Contracting was only included up

to 30 June 2021; (2) environmental

taxes paid were lower this year due to

outages at some generation sites; and

(3) environmental taxes collected were

lower due to lower energy usage by

business customers.

UK contribution to GDP

£5.8bn

2020/21: £5.2bn

Ireland contribution to GDP

€438m

2020/21: €439m

UK jobs supported

45,290

2020/21: 41,400

Ireland jobs supported

1,840

2020/21: 2,160

UK taxes paid

£335m

2020/21: £379m

Ireland taxes paid

€46.4m

2020/21: €20.4m

2021/22 UK and Irish GDP contribution, jobs supported and taxes paid

Generating value

across society

59SSE plc Annual Report 2022

Further information on SSE’s tax

contribution can be found in the

Sustainability Report 2022. Each year SSE

also publishes a Talking Tax report which

provides detailed information on the taxes

it pays in every jurisdiction it operates

within, with disclosure of its tax strategy

and approach. SSE’s Talking Tax reports can

be found on sse.com/sustainability .

Targeting sustainable supply chains

An overhaul of SSE’s sustainable

procurement strategy began in 2020,

recognising the opportunity for

an increased focus on social and

environmental value through its supply

chain. SSE’s new Sustainable Procurement

Code and accompanying Supplier

Guidance document were published in

April 2021, with both documents available

on SSE’s website. All suppliers working with

SSE must sign-up to the new Code which

aligns to the Group’s overall sustainability

approach and UN’s SDGs most material

to the Company. The Code sets out in

detail the sustainability requirements

and expectations for SSE’s suppliers.

Over 2021/22, SSE has also embedded

risk-based sustainability questions within

its new sourcing system for all tender events

to support the consideration of sustainability

more fully throughout the supply chain, with

a weighting of up to 20% for sustainability

criteria. Registration and pre-qualification

questionnaires have also been reviewed to

include enhanced sustainability questions.

Recognising the need for improved

sustainability data capture from its suppliers,

SSEN Transmission also launched its new

supply chain reporting tool in 2021/22.

Finally, collaboration with its supply

chain partners is central to delivery

of SSE’s sustainable procurement strategy.

Sustainability is now an agenda item at all

Strategic Relationship Management (SRM)

meetings. With 34 SRM suppliers, each

is required to provide a detailed annual

business update inclusive of sustainability.

SSE has also been working with a number

of these suppliers to develop and launch

the new global Powering Net Zero Pact

(see case study below.)

Embedding sustainability

through Large Capital Projects

SSE undertook an initiative over 2021/22

to ensure its Large Capital Projects (LCPs)

are designed and constructed to enable the

journey to net zero, deliver socio-economic

benefits and facilitate a just transition. The

newly updated LCP Governance Manual

now includes guidance and requirements

to embed sustainability through SSE’s LCPs,

ensuring sustainability risks are mitigated

and sustainability opportunities maximised

across 10 sustainability criteria. From 1 April

2022, a Sustainability Assessment and

Action Plan (SAAP) is required for all new or

early development projects, ensuring that

sustainability is incorporated into all phases

of major project development, construction

and operation. Guidance, training and

additional resources for project teams were

also developed to support the roll-out of

this new approach. While sustainability has

always been a key consideration in SSE’s

LCP activity, this work has helped to

formalise it as part of the overall

governance approach.

Delivering local opportunities

and community investment

An integral part of a just transition is

delivering opportunities and sharing

value locally. SSE primarily does this in

two ways: providing local jobs and supply

chain investment; and granting direct funds

for community projects. With the level

of ambition and action needed to reach

net zero, there are many opportunities to

deliver sustainable, competitive domestic

supply chains which maximise local

economic benefits. Information on SSE’s

focus on supporting local supply chains can

be found in the Sustainability Report 2022.

Over 2021/22, £9.7m of community

investment grants were administered

by SSE Renewables (2020/21: £10.2m).

This financed 1,048 community projects

across the UK and Ireland, including

more than 130 rural jobs, 96 scholarships

and 108 community projects which

enhance local net zero ambitions. Detailed

disclosure on this funding can be found

on sserenewables.com/communities .

In addition to this direct community

investment through renewables projects,

almost £500,000 was administered to

communities through SSEN’s Resilient

Communities Fund, and a further £1m was

donated by SSE directly to the Disasters

Emergency Committee in support of

humanitarian aid in Ukraine.

INTRODUCING THE POWERING NET ZERO PACT

The Powering Net Zero Pact (‘the Pact’)

is a new initiative created by SSE with

a group of other leading companies

working across the power sector,

which was developed as a legacy of

COP26. The Pact aims to bring together

companies across all tiers of the power

sector globally to achieve a fair and just

energy transition to net zero.

Over a six-month period, the 11

founding partners of the Pact – which

alongside SSE includes: Balfour Beatty;

DEME Group; GE Renewables; Hitachi

Energy; NKT; RJ McLeod; Siemens

Energy; Siemens Gamesa; Subsea 7;

and Vestas – met on a regular basis to

agree areas of focus, shared

commitments and topics for future

collaboration. Together the founding

partners operate in over 100 countries,

employ more than 240,000 people

globally, had a combined turnover in

2021 of around £56bn, and work with

approximately 120,000 suppliers.

The Pact focuses on five areas of

ambition: (1) achieving net zero carbon

emissions; (2) protecting and enhancing

the natural environment; (3)transitioning

to a circular economy; (4) guaranteeing

fair work and sustainable jobs; and (5)

adding value to local communities.

Each area of ambition has a shared

commitment and area for collaboration.

For example, to achieve net zero, Pact

signatories commit to working towards

1.5°C science-based carbon targets by

2025 and will participate in a working

group focused on the quantification of

scope 3 carbon emissions.

The Powering Net Zero Pact launched

in Glasgow in May 2022, six months on

from COP26. Any company involved in

the power sector which shares the

ambition of the Pact can become a

signatory. More information can be

found on sse.com/sustainability/

poweringnetzeropact .

ENGAGEMENT IN ACTION

SUPPLIERS, CONTRACTORS AND PARTNERS

60 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

SSE’s social contribution continued

Growing green jobs

The scale of growth needed to deliver SSE’s

net zero ambitions will result in significant

employment opportunities. SSE plans to

create 1,000 jobs every year to 2026.

Opportunities will be created for new

employees across a range of positions in

many different areas across the UK, Ireland

and beyond.

The sharpening of SSE’s strategic focus

around electricity infrastructure and net

zero saw it continue with planned disposals

of non-core business areas over 2021/22.

These changes, which impacted around

2,300 employees, were undertaken with

full consultation with impacted employees

and employee representatives.

Due to the disposal of certain business

areas, SSE’s headcount reduced from

12,489 at the end of 2020/21 to 10,754

at the end of 2021/22. However, to meet

the demand of its other growing Business

Units, the total number of people joining

SSE rose from 1,529 in 2020/21 to 2,290

in 2021/22. This means that SSE filled a

total of 3,195 positions across internal and

external recruitment over 2021/22, an

increase of 43% from 2020/21. The size

of SSE’s contingent workforce reduced

between 2020/21 and 2021/22, from 1,950

to 1,767 people. This is attributed in part to

the reshaping of the business and in part to

the impact of the IR35 tax regulations.

SSE’s employee retention levels in 2020/21

were historically high. As stated in the

Annual Report 2021, this was largely

attributed to the coronavirus crisis and

consequential reduced activity within the

wider labour market. Coinciding with the

easing of coronavirus restrictions, SSE’s

2021/22 retention levels have decreased

compared from 2020/21, from 92.1% to

90.5%, however this remains higher than

the 2019/20 retention rate of 88.0%. SSE’s

2021/22 voluntary turnover rate was 7.8%

(2020/21: 3.6%, 2019/20: 6.5%). Attraction

and retention of employees remains a key

focus for SSE.

Committed to leading

labour standards

Creating job opportunities is an important

element of the just transition to net zero,

however ensuring these are high-quality jobs

is equally important. SSE implements robust

labour standards in line with its responsible

employer ethos, going beyond minimum

standards to ensure that those that work for

it, either directly or on its behalf through its

supply chain, are treated fairly and with

dignity and respect.

Protecting health and safety

Safety remains SSE’s first priority with the

objective that ‘everyone gets home safe’.

In the 2021 all-employee Great Place to

Work survey which had a 77% response

rate, 92% of employees said that they work

in a safe and healthy work environment and

90% said that SSE makes it easy for people

to do the right thing on Safety, Health

and Environment.

Over 2021/22, SSE achieved 254 Safe

Days (days where there were no minor,

serious or major SSE or contractor safety

or environmental incidents or any incident

with high potential for harm to people or

the environment) and reported a Total

Recordable Injury Rate (TRIR) for employees

and contractors combined of 0.17 per

100,000 hours worked. The number of Safe

Days decreased and the TRIR increased in

2021/22 compared to 2020/21. SSE believes

this is a result of employees continuing to

manage the implications of the coronavirus

pandemic and changes in working patterns,

including a significant increase in contractor

hours. Support for employees during the

coronavirus pandemic continued over

2021/22.

Further information on SSE’s health and

safety performance over 2021/22 is provided

in the Safety, Sustainability, Health and

Environment Advisory Committee report

on pages 164 to 167  and in the

Sustainability Report 2022 .

Paying the real Living Wage

SSE has been a Living Wage accredited

employer in the UK since 2013 and has paid

the Living Wage in Ireland since 2016. SSE

began chairing Living Wage Scotland’s

Leadership Group in April 2021 and the

company is now beginning to explore

how it extends its commitment to paying

workers a real Living Wage beyond just the

UK and Ireland.

Guaranteeing secure working hours

Living Hours guarantees workers with fair

and secure working hours alongside a real

Living Wage, specifically requiring:

• Decent notice periods for shifts of

at least four weeks, with guaranteed

payment if shifts are cancelled within

this notice period;

• The right to a contract that reflects

accurate hours worked; and

• A guaranteed minimum of 16 hours a

week (unless the employee requests

otherwise).

Since its accreditation as a Living Hours

employer in March 2021, SSE has been

working to roll-out this enhanced standard

across its supply chain. It also continues

to be a member of the Living Wage

Foundation’s Living Hours Steering Group

where it provides advice and a business

perspective on how to grow the

accreditation initiative.

Recognising the issue of work security

more broadly, the vast majority of SSE

employees are on permanent contracts.

In 2021/22, 94.4% of employees were

on permanent contracts, 0.6% were on

non-guaranteed or short hour contracts,

and 5% were on temporary contracts.

Developing employees from within

SSE’s investment in learning, training and

development increased to £7.5m in

2021/22 from £6.8m in 2020/21. Average

training hours per full-time employee also

returned to near pre-pandemic levels

(2021/22: 20.7, 2020/21: 9, 2019/20: 23.4),

with 84.2% of SSE’s employees receiving

some form of training over the year.

In addition, while the number of people on

one of SSE’s pipeline programmes

(apprenticeships, technical skills trainee

programmes, graduate programmes,

conversion programmes and other pipeline

programmes) remained relatively static

(2021/22: 465 individuals, 2020/21: 470

individuals), the decrease in SSE’s headcount

meant that this actually represented a notable

increase in the proportion of SSE’s workforce

on a pipeline programme, rising from 3.8% to

4.3%. Investment in pipeline programmes

also increased to £9.8m in 2021/22 from

£9.0m in 2020/21. This brings SSE’s total

investment in pipeline programmes over

the last three years to just under £30m.

More information on SSE’s approach to

learning and development and its training

programmes can be found in its

Sustainability Report 2022.

Guaranteeing fair work

and good jobs

61SSE plc Annual Report 2022

Boosting inclusion and diversity

SSE understands that greater inclusion

and diversity is central to its success going

forward, which is why it has reviewed

and refocused efforts over 2021/22 to

accelerate progress. Detail can be found on

the inclusion and diversity section of this

report (see pages 64 and 65  and within

SSE’s Inclusion and Diversity Report 2022,

available on sse.com/sustainability/

reporting .

Valuing employee voice

Everyone that works for SSE has the

fundamental right to freedom of

association and to join a trade union. SSE

has four recognised trade union partners

(Prospect, Unite, Unison and the GMB)

which it works with through the Joint

Negotiating and Consultative Committee

and through regular on-going dialogue.

In 2021/22, 54.2% of SSE’s total direct

workforce were covered by collective

bargaining agreements.

Broader incorporation of employee voice

is recognised by SSE as an important part

of decision-making and strategy. See

the stakeholder engagement section on

employees on page 34  and the case

study below for more information.

Providing employee benefits

SSE offers a wide range of employee

benefits, detailed on careers.sse.com/

employee-benefits . This includes

flexible working arrangements, 21 weeks

of fully-paid maternity leave, all-employee

share plans, a holiday purchase scheme,

cycle-to-work schemes, salary sacrifice

low emissions car scheme, and technology

loans. 96% of SSE’s employees participated

in one of its pension schemes over

2021/22.

Transparency of workforce disclosure

SSE provides open disclosure on its direct

and supply chain workforce. In 2021/22,

the company participated in the investor-

led Workforce Disclosure Initiative (WDI)

survey for the sixth consecutive year,

remaining in the 10% of submissions for

open disclosure.

SUPPORTING WORKERS TRANSITION

FROM HIGH TO LOW-CARBON CAREERS

Over 2021/22, SSE undertook wide-

ranging stakeholder engagement on its

just transition approach. This included

meeting and consulting with policy

makers, trade union partners, suppliers,

oil and gas companies, investors,

academics, and industry and skills

bodies. Most importantly though,

SSE sought insights from its own

employees.

Using SSE’s 2021 Great Place to Work

survey, the company established that

more than 1 in 5 of all employees had

previously worked in high-carbon

roles, rising to as high as a third of

all employees in certain parts of the

business such as SSE Renewables.

To understand the drivers of change,

and what SSE could do better to further

attract and retain people from high-

carbon industries, the Company

undertook qualitative research with

employees that had previously worked

in high-carbon roles. Over 150 of these

employees answered a detailed just

transition survey, providing SSE with rich

information about their experiences and

offering feedback for the company.

These findings, and the wider

engagement with other stakeholders,

were used to inform SSE’s second

report on the just transition which was

published in September 2021. This

report, ‘From Principles to Action’,

looks specifically at how best to

support workers make the move from

high to low-carbon careers. It outlines

20 commitments for SSE as well as

10 recommendations for industry and

10 recommendations for Government.

It also includes 137 individual pieces

of advice from SSE employees that

have made the transition, verbatim

and uncensored.

At an industry and government level,

these recommendations include

developing ‘all energy’ frameworks for

skills, fair work terms where there is

public sector support for climate action,

and making sure net zero sector plans

embed the concept of a just transition.

For SSE, commitments include things

like not asking for industry-specific

experience unless it is genuinely

required, piloting an engineering

conversion programme, and paying for

workers to develop the skills they need.

SSE has continued to work with its

employees on its just transition

approach. Beginning in March 2022, a

programme of just transition employee

focus groups commenced to gather

deeper insights on the opportunities

and challenges from a worker

perspective. This included an employee

focus group session in March 2022 held

jointly with one of SSE’s recognised

trade union partners, Prospect. SSE has

also created a new page on its careers

website specifically designed for those

interested in joining the company from

high-carbon sectors.

JUST TRANSITION:

FROM PRINCIPLES

TO ACTION

Supporting workers transition from

high to low-carbon careers

SSE’s Just Transition Strategy, its ‘From Principles

to Action’ report and wider information on its

just transition approach is available on sse.com/

sustainability/just-transition .

ENGAGEMENT IN ACTION

EMPLOYEES

62 SSE plc Annual Report 2022

STRATEGIC REPORT

DOING THE

RIGHT THING

SSE’s guide to good

business ethics

Promoting and maintaining

a healthy business culture

SSE is a business growing and changing for a

net zero world. Underpinning this is a strong

commitment to a healthy business culture

that supports people to do the right thing.

SSE’s guide to good business ethics is

updated regularly, and underwent a full

review over 2021/22. The guide applies

both to direct employees and those that

work on SSE’s behalf. It is promoted to all

employees through SSE’s internal

communication channels and mandatory

elearning modules, and is highlighted to

suppliers on page 1 of SSE’s Sustainable

Procurement Code. Topics covered include

bribery and corruption, fair competition,

business separation, engagement with

politicians and regulators, modern slavery,

safeguarding the environment, managing

data and cyber security. SSE’s ‘Doing the

Right Thing’ guide is publicly available on

sse.com/sustainability/policies-and-

assurances .

In addition to this overall guide, guidance

and supporting documents to help

employees do the right thing include SSE’s

Financial Crime Guide, Anti-Financial Crime

Framework, Group Inherent Fraud Risk

and iComply portal.

Specific responsibility for financial crime

horizon scanning, regulatory news and

preparing internal financial crime updates

sits with SSE’s Group Anti Financial Crime

Officer, with each of SSE’s business units

having their own Anti Financial Crime

Officer that provide further support and

guidance. SSE’s Anti-Corruption and

Financial Crime Committee reports directly

into the Group Risk Committee and is

responsible for driving adherence and

monitoring implementation of SSE’s Group

Corruption and Financial Crime Prevention

Policy which is also publicly available.

To ensure a constant minimum standard

across SSE’s workforce on good business

ethics, SSE has a suite of mandatory ethics

and compliance training modules. This

includes modules on Fraud Awareness,

Bribery and Anti-Corruption, and Anti-

Money Laundering and Financial Sanctions

which all employees must complete

bi-annually, with additional modules on

competition law and REMIT for selected

employees.

A review of cultural metrics is undertaken

by SSE’s senior leadership and a review of

SSE’s cultural dashboard is undertaken by

the Board twice annually (see page 141 ).

Reporting and investigating

wrongdoing

While SSE aims to reinforce a healthy

culture at all levels of the organisation, it

knows that sometimes things go wrong.

The company therefore has an

independent whistleblowing channel,

SafeCall, as well as internal channels which

employees can use to speak up against

wrongdoing. SSE’s Group Whistleblowing

Policy is available on sse.com/

sustainability/policies-and-assurances ,

with the effectiveness of SSE’s

whistleblowing arrangements reviewed

twice yearly by the GEC and the Board.

Over calendar year 2021, there were 52

reports of wrongdoing made through SSE’s

speak up channels, a 21% decrease from 66

reports over calendar year 2020 which is

understood to be driven primarily by the

impacts of Covid-19. Of these 52 reports:

17% related to Dishonest Behaviour (Fraud/

Theft/Bribery/Integrity/Money Laundering/

Corruption); 27% related to HR (Bullying/

Harassment/Victimisation); 4% related to

Inclusion and Diversity (Racism/

Discrimination/Unfair Treatment); 50%

related to Health and Safety (General

Safety/Covid-19/Environmental/Product

Contamination); 2% related to Drugs/

Alcohol; and 0% related to Regulatory

Compliance.

All of these reports of wrongdoing were

passed on for formal investigation. one

resulted in dismissal; four resulted in

warnings issued; five resulted in no action

taken; one was subsequently investigated

as a grievance; 10 were investigated and

partly substantiated but with no action

taken; 19 were investigated but with the

case was not proven; four resulted in an

initial investigation establishing that there

was insufficient evidence to proceed

further; and eight cases could not be

investigated due to insufficient information

to establish the nature, cause, location or

otherwise of the allegation being provided.

Encouraging a ‘speak up’ culture is

fundamental to an ethical business culture.

People that work for SSE or on its behalf

are encouraged to speak up without fear of

retribution. SSE’s Speak Up Aftercare

Programme has been designed to promote

good communication with people who

speak up and reassurance that there will be

no detriment for anyone speaking up in

good faith. The Programme takes the form

of a survey that is issued at the point of

initial complaint, at 90 days and then at 180

days. Each survey is slightly different,

having been designed to ensure that there

is opportunity to highlight detriment in any

form, provide an outlet for discussion and

resolutions, and also seek feedback for SSE

on the user experience, ease of reporting,

what went well and to constantly improve

the service we are offering.

Targeting modern slavery risk

Protecting human rights and mitigating

against the risk of modern slavery is the

foundation of any good business and a fair

and just transition to net zero. Over

2021/22, SSE continued to increase focus

on this issue through delivery of its targeted

Modern Slavery Action Plan. This Action

Plan was created in 2020/21 following a

gap analysis of its human rights approach

SSE’s ‘Doing the right thing’ guide to good business

ethics is available on sse.com/sustainability .

A sustainable approach continued

SSE’s social contribution continued

63SSE plc Annual Report 2022

by experts Stronger Together, with detail

of this process provided in SSE’s Modern

Slavery Statement 2021.

Key developments over 2021/22 are

highlighted below, with further information

reported within SSE’s Modern Slavery

Statement 2022 which will be published on

the sse.com  homepage in August 2022.

• Major initiative undertaken to embed

sustainability, including human rights,

through SSE’s Large Capital Projects

governance process (see page 59 );

• Deep-dive risk assessments of the

supply chains of two major infrastructure

projects undertaken by Stronger

Together;

• Stronger Together carried out two

on-site human rights assessments

during the construction of two major

SSE projects in the UK;

• Enhanced engagement and further

commitment to collaborate on modern

slavery in global supply chains with

strategic suppliers (see Powering Net

Zero Pact case study on page 59 );

• Roll-out of employee awareness raising

and development of bespoke learning

pathways for priority employees;

• Creation of a Human Rights Working

Group, which reports on progress to

SSE’s Human Rights Steering Group;

• Active collaboration with peers through

the Utilities Against Slavery group,

facilitated by the Slave Free Alliance, and

SSE’s partnership with the Supply Chain

Sustainability School.

SSE ranked 2nd out of 47 companies in the

utilities sector in the Global Child Forum

and the Boston Consulting Group’s The

State of Children’s Rights and Business 2021

Benchmark. The benchmark assesses a

total of 832 companies’ approaches to

human rights issues affecting children,

using publicly available information.

SSE sees proactive stakeholder engagement

– like this school visit to Viking wind farm –

as key to a healthy business culture.

64 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

SSE’s social contribution continued

In 2021/22, SSE refreshed its Inclusion

and Diversity Strategy by developing four

strategic areas of focus: (1) Ambition; (2)

Education and Development; (3) Inclusive

Processes; and (4) Employee Voice. The

new strategy relies on a collective effort

and focus from all leaders. Actions to help

shape and influence positive change in

delivering greater inclusion and diversity

are informed through collaboration with

external partners to identify opportunities

for further improvement, as well as

listening to employees’ lived experiences.

The refresh ensures SSE delivers greater

inclusion and diversity across all levels of

the Company and embeds systemic and

behavioural change, supporting the delivery

of SSE’s ‘IN, ON, UP’ approach which it

has been implementing since 2017. This

approach, developed with inclusion experts

EAInclusion, focuses on attracting diverse

talent IN, enabling them to stay ON,

and supporting them to progress UP, by

providing opportunities that are fair and

transparent for all.

A high-level overview of progress against

the new strategy is outlined on these

pages, with more detail available in SSE’s

Inclusion and Diversity Report 2022 .

1. Ambition: setting

measurable goals

SSE has simplified its gender reporting

and set new stretching gender ambitions

in 2021/22, approved by the Group

Executive Committee (GEC) and Board-

level Nomination Committee. This includes

increasing the proportion of women within

the GEC and Direct reports to 40% by

2025, in line with the FTSE Women Leaders

Review. In addition, SSE will increase female

representation in its wider Leadership

Group, which covers around 900

employees, to 40% by 2030, as well as

increase overall female representation across

the company to 33% by 2030. Performance

against these ambitions is shown in the table

on the following page, with information on

key changes detailed below.

As at 31 March 2022, female representation

across the Group Executive Committee

and Direct Reports population (excluding

administrative employees) was 22.4%. This

represented a reduction from the 2020/21

level of 25% and was attributed to six men

joining this population, whilst the number

of women remained the same.

Between 31 March and the last practicable

day for inclusion in the Annual Report 2022,

24 May 2022, a number of planned changes

within the above group came into effect.

These were the effective appointment of

Catherine Raw as MD, Thermal as previously

announced in February 2022; structural

changes across the SSE Renewables

SSE’s enhanced Inclusion

and Diversity Strategy

The innovative solutions required to deliver net

zero need a workforce with diverse perspectives,

different experiences, and new skills. Over

2021/22, SSE has refreshed its strategic approach

to inclusion and diversity, recognising that this is an

essential driver to deliver net zero in a way that is

fair and affordable.

SSE’s Inclusion and

Diversity Report 2022

Reflecting its increased strategic focus

to drive greater inclusion and diversity

across the business, SSE has published a

new comprehensive standalone Inclusion

and Diversity Report 2022, providing

detailed information on SSE’s updated

Inclusion and Diversity Strategy, progress

made, and a range of key performance

indicators for 2021/22. Transparency on

its inclusion and diversity approach allows

SSE to share successes and learnings,

as well as gain feedback from key

stakeholders. Read the report on

sse.com/sustainability/reporting .

UK (93% of SSE’s total 2021/22 workforce)

Mean gender pay gap:

13.2%

2021: 16.5%

Median gender pay gap:

18.0%

2021: 18.3%

Ireland (7% of SSE’s total 2021/22 workforce)

Mean gender pay gap:

18.4%

2021: 18.9%

Median gender pay gap:

25.6%

2021: 27.1%

2022 gender pay gap

SSE’s headline gender pay gap figures as at 5 April 2022 are provided below, with

further data, analysis and disclosure of actions taken to reduce the gap provided

in SSE’s Inclusion and Diversity Report 2022 . SSE has voluntarily disclosed its

Ireland Gender Pay Gap since 2021, calculated in line with the UK Gender Pay Gap

methodology, based on a snapshot date of 5 April. The figures below follow this

approach for 2022. In May 2022, the Irish Government launched new mandatory

requirements for calculating the Gender Pay Gap in Ireland, which will require

companies to use a June 2022 snapshot date and report this data publicly by

December 2022. The June 2022 snapshot is beyond the last practicable day for

inclusion in the Annual Report 2022 (being 24 May 2022), but SSE confirms the

data will be reported in line with stated December deadline.

65SSE plc Annual Report 2022

Leadership Team following Stephen

Wheeler’s appointment as MD, SSE

Renewables in January 2022; and the

Director of HR and Director of Corporate

Affairs and Strategy, becoming full members

of the Group Executive from their previous

positions of Regular Attendee. As a result,

female representation in the GEC has

decreased from 25% to 20%, but has risen

across the Group Executive Committee and

Direct Reports from 22.4% to 34.2%.

SSE considers external benchmarking

when setting ambitions, which includes

the FTSE Women Leaders Review, the

successor to the Hampton Alexander, as

well as the Workforce Disclosure Initiative,

the Bloomberg Gender Equality Index, and

the UN Women’s Empowerment Principles

gap analysis tool.

Supplementing its externally disclosed

gender ambitions, SSE tracks progress

against a wider range of diversity metrics,

including the proportion of women, ethnic

minority, disabled and LGBTQ+ employees.

Senior leaders have a quarterly focus on

progress against broader internal inclusion

and diversity ambitions. These metrics are

reviewed by the GEC twice yearly and by

the Board annually, with the company

exploring options for setting diversity

ambitions beyond gender.

2. Education and

development: focusing

on behaviours

Senior leadership commitment to inclusion

and diversity is paramount for delivering

change, and SSE’s leaders have a

responsibility to build a culture of belonging

for all. To support its senior leaders to do

this, SSE invests in behavioural change

initiatives and resources.

In 2021/22, SSE provided a series of

educational interventions to ensure that

inclusion and diversity is prioritised, build

SSE’s Gender Ambitions

Gender split of: Year Ambition

24 May 2022³

% Female

(Male/Female

headcount)

31 March 2022

% Female

(Male/Female

headcount)

31 March 2021

% Female

(Male/Female

headcount)

Group Executive

Committee (GEC)¹

– – 20%

(8/2)

25%

(6/2)

25%

(6/2)

GEC¹ and direct reports

(excl. administrative roles)

2025 40%

female

34.2%

(52/27)

22.4%

(45/13)

25%

(39/13)

Leadership Group² 2030 40%

female

–

23.7%

(681/212)

20.2%

(649/164)

All employees 2030 33%

female

–

28.8%

(7,658/3,096)

26.4%

(9,190/3,299)

1 In the context of gender reporting, the GEC includes all members of the GEC and the Company Secretary.

This is the definition of senior managers in SSE for the purposes of s414C(8)(c)(ii).

2 Employees in SSE’s senior level pay grades.

3 24 May 2022 is the last practicable day for inclusion in the Annual Report 2022.

collective leadership confidence to create

the right environment, and lead inclusively.

This included the ‘Igniting Inclusion

Development Programme’, developed in

partnership with Ashridge Business School,

which provided insights, education, and

discussion on: the Neuroscience of Inclusion

and Diversity; Growth Mindsets; and

Psychological Safety. 186 senior leaders

participated in this programme, with 94%

of those who responded to the feedback

survey on the three sessions reporting a

better understanding of the topics, and 95%

felt more confident in applying their learning.

SSE has dedicated internal webpages

which act as a central point of resource for

all employees. This includes best practice

materials, webinar recordings, learning

materials, employee blogs and vlogs to talk

about experiences, and manager guides to

support employees and managers with how

to create an inclusive workplace.

SSE developed a Strategic Secondary School

network across 25 priority locations, offering

a bespoke programme based on Tomorrow’s

Engineers STEM Code to inspire and

showcase the range of opportunities within

the energy sector. The secondary schools

are chosen by indicators such as high levels

of Black, Asian and Minority ethnicities, areas

of deprivation, gender imbalance in STEM

subjects, and attainment gaps or rurality.

SSE is currently working with its social

mobility education partner, Teach First, to

build a Just Transition themed programme

for all primary schools throughout the UK

and Republic of Ireland. The content for both

primary and secondary is curriculum aligned,

inclusive and demonstrates diversity.

There are 38 secondary school Strategic

Partnerships with a STEM Volunteer

community of 365 across the Businesses,

geographic spread and various disciplines. In

2021/22 SSE delivered over 159 educational

interventions across the UK, with an average

score of 9/10 for both “Helpful to pupils’

learning” and “Helpful to pupils’ career

aspirations” from the host teachers.

3. Inclusive processes:

embedding best practice

Developing robust policies and processes,

to embed inclusion and diversity, ensures

SSE creates a workplace that supports all

employees and future employees. SSE

believes improved diversity characteristics

are a result of embedding best practice into

existing process and routinely reporting on

key drivers of inclusion.

A “Hiring for Difference” scorecard, which is

reviewed by the Group Executive Committee

and Board quarterly, shows progress against

targets on the percentage of diverse

recruitment panels, number of roles openly

advertised, and the promotion of flexible

working for senior hires. Over 2021/22, these

metrics have improved significantly to over

90% for each, with the number of diverse

panels more than doubling since April 2021.

In addition, using diverse job candidate

short-lists has improved from 33% in Q1

2021/22 to 80% in Q4 2021/22. SSE

increased its hiring rate of women into its

Leadership Group (around 900 employees),

from 15% over 2020/21 to 32% over

2021/22, and as a result the female

representation in SSE’s Leadership Group

has increased from 20.0% to 23.7%. In

addition, SSE prioritised transferable skills

in job descriptions, over technical skills,

to increase the diversity of job applicants.

This was done through facilitated

workshops which challenged the details,

tasks, and key requirements of job roles.

4. Employee voice:

actively listening

Listening to SSE’s employee voice helps

to build trust with its employees, drives

innovation, and focuses business priorities.

It also helps employees feel valued,

resulting in better job satisfaction and

increased opportunities for development.

Over 2021/22 SSE has listened to

employees’ lived experiences on subjects

such as graduate recruitment and used this

to drive inclusion and diversity forward

by influencing the breadth and types of

universities that it engages with as well as

how information about SSE is positioned.

SSE’s ‘Belonging Communities’ aim to

unite employees by encouraging open

and constructive discussion. Focus groups

were carried out over 2021/22 with several

Belonging Communities, exploring how

external best practices compare to lived

experiences to create bespoke plans of

action to help SSE be even more inclusive.

66 SSE plc Annual Report 2022

STRATEGIC REPORT

A sustainable approach continued

SSE’s social contribution continued

Avoiding the next energy crisis

With post-pandemic market tightness and

the Russian invasion of Ukraine, energy

prices have been at generational highs

feeding into a cost-of-living crisis that looks

to continue until at least spring 2023. SSE

has engaged widely with governments,

devolved administrations, regulators, and

other stakeholders, both bilaterally and

through its trade associations, to inform

options for near term alleviation of the

impact of rising energy bills on households

and businesses in the UK and Ireland,

particularly the most vulnerable.

To help reduce the economy’s exposure to

gas imports in the medium term, SSE has

worked closely with governments, including

on the UK’s British Energy Security Strategy,

to ensure its £12.5bn Net Zero Acceleration

Programme (NZAP) can have the greatest

impact in reducing energy costs. To help

protect the UK and Ireland from the next

energy crisis, SSE has commissioned

independent analysis to inform developing

plans which aim to reduce costs, gas and

carbon as soon as possible.

Responding to the

affordability challenge

SSE recognises the huge challenges

faced by its customers during the current

affordability crisis. Over winter 2021/22,

SSE Airtricity provided up to €500,000 of

funding for customers requiring additional

support. The company has also established

a €1m fund to directly support customers

who may be struggling to pay their bills.

The business also made a donation of €1m

to a trusted all-island charity partner to

support hard-to-reach cohorts struggling

with the cost of living. In May 2022 a price

promise was announced by SSE Airtricity

to hold energy tariffs for existing domestic

financially vulnerable customers in Ireland

for the remainder of the year.

SSE Airtricity has also expanded the range

of external stakeholders it works with to

include agencies working directly with

customers in financial difficulty. The

development of these partnerships has

helped support direct referrals and

provided better support for customers

who are struggling. SSE is also supporting

customers with energy efficiency

measures, including some free of charge

energy upgrades to those experiencing fuel

poverty, see the next page.

Providing an inclusive service

SSEN Distribution attained the British

Standard for inclusive service provision

(BS 18477) for the sixth year in a row in

2021/22. This was achieved through

rigorous assessments to ensure SSEN’s

policies, procedures and services are

accessible and fair to all customers.

SSEN Distribution’s Priority Services

who need it most on the rare occasions

there is a power cut. Throughout 2021/22,

SSEN has been encouraging customers to

free additional services via podcasts,

events, posters, and partnerships. The PSR

had 768,104 people registered on it in at

the end of 2021/22 (2020/21: 770,844).

This covers 71.3% of eligible households

in SSEN’s distribution network areas,

an increase from 68.5% in 2020/21.

Providing access to affordable

and clean energy

ENGAGEMENT IN ACTION

ENERGY CUSTOMERS

RESPONDING TO EXCEPTIONAL

WEATHER EVENTS

In response to a 2021/22 winter of

consecutive exceptional weather

events, SSEN Distribution teams worked

tirelessly to maintain supply with a

particular focus on supporting isolated

and vulnerable customers. Between

November 2021 and February 2022,

SSE’s network areas in both north and

south were tested by six exceptional

weather events, including back-to-back

named storms with three storms

occurring in just one week.

In the aftermath of storms Arwen, Malik,

Corrie and Eunice, around 430,000

customers were affected and SSEN’s

Priority Services Register, which had

been extended in response to the

coronavirus pandemic, was used

extensively by dedicated outreach teams

to proactively engage via phone and text

message with vulnerable customers.

Engagement with impacted customers

was further enhanced on the ground by

good attendance at around 90 Local

Resilience Partnership meetings. In

addition to the reconnection efforts by

operational teams, localised support was

provided through door-to-door welfare

checks and the provision of more than

140,000 hot meals and drinks.

In recognition of the hardship caused

for customers by these extreme

weather events, SSEN has boosted its

Resilient Communities Fund to a total

of £2m across licence areas.

67SSE plc Annual Report 2022

Helping homes and

businesses go green

SSE Energy Customer Solutions is

committed to supporting customers and

broader communities to work towards a

cleaner, greener future.

In March 2022, building upon the success

of existing partnerships with An Post and

several Local Authorities across the

country, SSE Airtricity became the first

nationally accredited one-stop-shop

for home energy upgrades with the

Sustainable Energy Authority of Ireland

(SEAI). As part of this initiative, in April 2022

SSE Airtricity committed to delivering home

energy upgrades to up to 600 homes

experiencing fuel poverty free of charge.

SSE Airtricity has also been awarded the

contract to install the first communal heat

pump system in Ireland, where 44 of the

88 units are assisted living centres.

During 2021/22, SSE’s business customers

on green products grew from 6% to almost

30%. Over the year, the business ensured

that customers joining or rolling onto new

fixed contracts were provided with 100%

renewable electricity, matched with

independently verified and assured output

from SSE’s UK wind farms and hydro plants.

In May 2021, a simplified Corporate Power

Purchase Agreement (CPPA) approach was

announced to enable a wider range of

customers to purchase energy directly

from SSE’s renewable assets, giving

customers fully traceable access to 100%

renewable energy. Finally, in September

2021, SSE also launched the Green EV tariff,

which supports businesses running on, or

switching to, electric vehicles and enables

them to charge fleets with 100% renewable

electricity. In response to feedback from

SMEs which showed 84% considered

product sustainability as an important

procurement choice but 50% were unsure

of actions required, SSE launched its new

Energy Solutions website. The site provides

a knowledge centre for customers to

access the range of products available from

SSE, and assist them with reducing the

carbon footprint of their businesses and

supply chains.

Unlocking local solutions through

global partnerships

As part of its COP26 legacy and inspired by

Project LEO, the most ambitious and

holistic smart grid trial in the UK, SSEN

developed a new global smart grid

partnership. Discussions with global and

community partners resulted in the launch

of the International Community for Local

Smart Grids (ICLSG). The ICLSG consists of

electricity distribution companies from the

UK, Australia, Italy and Japan, with SSEN,

Ausgrid and Enel as founding partners.

These companies have joined forces to

revolutionise and support communities to

engage with electricity grids of the future.

Launched at COP26, the University of

Oxford-led initiative in cooperation with

the Enel Foundation, will bring together

electricity networks and community energy

groups, scientists, and practioners from

across the world to remove barriers to

delivering net zero at a local level and

share key learnings from innovation

projects, facilitate discussions around

challenges and support a collaborative

transition to a decarbonised future. In

addition to tackling climate change this

partnership benefits consumers by building

resilient communities.

Increasing accessibility of electric

vehicles with Equal EV

A core element of the just transition to net

zero is ensuring it is cost-effective, secure

and inclusive for all. This means ensuring

opportunities are open to all customers and

infrastructure is developed in a fair and

accessible manner. Over 2021/22, SSEN

Distribution continued its partnership with

leading charity Disabled Motoring UK to

support more blue badge holders to get on

the road with EVs, and worked with Energy

Systems Catapult (ESC) on the second phase

of the Equal EV project. Equal EV aims to

overcome the four key barriers preventing

disabled motorists from making the switch

and benefitting from low carbon transport.

This includes: (1) accessibility of charging

points; (2) costs of modifications; (3) range

anxiety; and (4) lack of support with

charging compatibilities. In March 2022,

SSEN and ESC produced their first Equal EV

report which maps out customer journeys

for people with disabilities and identifies

how available and emerging technologies

can mitigate the barriers and challenges

identified in the project’s first phase.

ENGAGEMENT IN ACTION

NGOS, COMMUNITIES, CIVIL SOCIETY

BUILDING A SENSE OF

COMMUNITY AROUND RIIO-ED2

Communities are at the core of SSEN

Distribution’s RIIO-ED2 business plan

for the next price control. An extensive

stakeholder engagement programme in

2021/22 gave more than 25,000 people

the opportunity to have a say on the

plan, shaping 64 outputs. The process

featured qualitative and quantitative

research, and ‘Citizens Juries’ were held

on key ED2 topics such as sustainability

and innovation while the Managing

Director hosted a roundtable with fuel

poverty charities, the regulator and

consumer groups in November 2021.

COP26 provided a forum to engage on

SSEN Distribution’s role in a smart and

fair transition to net zero through delivery

of its ED2 plan. ED2 also featured in the

business’s established engagement

framework which includes a Stakeholder

Advisory Panel (meets quarterly); an

ED2 Customer Engagement Group

(met six times in the year); Inclusive

Service Panels (met three times) and

Connections Expert Customer Panels.

68 SSE plc Annual Report 2022

STRATEGIC REPORT

Principal Risk Self Assessment Process

Outputs: Actions

and Risk

Disclosures

Executive

Committee

Assessment

Board

Assessment

Individual Risk

Reviews

Committee Self

Assessments

Risk-informed decision making

SSE’s established Risk Management

Framework and the wider system of internal

control described on page 161  of the

Directors’ Report continued to inform

strategic decision making in 2021/22.

As highlighted in the Chair’s Statement

on pages 6 and 7  and in the sector

review on pages 28 to 31  throughout

2021/22 SSE met and managed a number

of challenging external factors with

extreme storms, the climate emergency,

unprecedented and sustained volatility

in energy markets and the ongoing

pandemic featuring heavily in strategic

risk discussions.

Despite these significant challenges, SSE

has made substantial progress this year on

major projects within its capital delivery

programme, including the landmark

Shetland HVDC Link, with options for

substantial growth over and above capital

expenditure plans approved under the

RIIO-T2 price control, seeking to balance

affordability for energy consumers with the

need to attract the investment required for

the transition to net zero.

SSE has also continued to deliver significant

strategic progress through its disposal

programme, with proceeds in the region

of £2.8bn secured to date against the

target set in June 2020.

These factors along with ongoing war in

Ukraine that has exacerbated the already

intensified market volatility, security of

supply concerns and affordability pressures

formed the basis of the full review of SSE’s

Principal Risks that took place during the

financial year.

Board considerations

Effective identification, understanding

and mitigation of Principal Risks underpins

the Board’s approach to setting strategic

objectives for SSE and informing strategic

decision making. The Board aims to

consider all material influencing factors and

key external trends in the energy market,

including those relating to climate change,

Managing SSE’s

Principal Risks

The execution of SSE’s strategy and delivery

of its purpose are dependent on the effective

identification, understanding and mitigation

of the Group’s Principal Risks.

technological developments and capital

flow and aims to do so in a way that

reflects the expectations of SSE’s key

stakeholder groups.

These material influencing factors also

have an impact on the nature and extent

of risks the Board is willing to take to meet

these objectives, and related mitigation

strategies adopted by the Group. Material

changes in the nature and potential

impacts of SSE’s Group Principal Risks

are regularly assessed with appropriate

mitigations implemented where necessary.

Overseeing risk

The Group Executive Committee and its

sub-committees have responsibility for

overseeing SSE’s Principal Risks. During

the third quarter of SSE’s financial year,

an assessment of each Principal Risk is

completed by the assigned oversight

committee. This assessment requires

committee members to provide

commentary on contextual changes to the

risks, consider whether over the course of

the year the risks have become more or less

material based on impact and likelihood

and to confirm procedures and policies are

in 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.

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 testing and analysis of

relevant, current management information

and key information relating to Business

Unit Principal Risks and controls. These

reports form the basis for the committees

to discuss and confirm the risk trend

(more, less or equally material), overall

effectiveness of the risk control and

monitoring environment, and whether any

additional control improvement actions are

required. This is an inclusive and iterative

69SSE plc Annual Report 2022

Residual Risk Score

HighLow

Potential Impact on Group Viability MoreLess

1. Energy affordability**

2. Politics, regulation

and compliance

3. Cyber security

and resilience

4. Commodity prices

5. Climate change

6. Speed of change

7. Energy infrastructure

failure

8. People and culture

9. Large capital projects

management

10. Safety and the

environment*

11. Financial liabilities

process that results in considered and

objective outputs and a robust assessment

of Principal Risks.

The outputs from these committee

assessments are then presented to the

Group Executive Committee for full

review, with any emerging risks or

additional material changes resulting

from this being proposed to the Board.

2021/22 review outcome

Following the 2021/22 annual review process,

the number of Principal Risks to the Group

remains at 11 with one revision of note.

An essential tenet of SSE’s Risk

Management process is the consideration

of potential emerging risks and whether

any of those identified have the potential

to become a Group Principal Risk in the

medium to long-term. As such, following

the 2021/22 review process and due to

the development of a Joint Venture

Governance framework throughout the

year, the emerging risk “Joint Venture and

Partner Management” was not retained as

an emerging risk. Joint Venture and Partner

Governance has however been included as

a key mitigation against the Group Principal

Risks of Large Capital Project Management,

People and Culture, Politics, Regulations

and Compliance and Speed of Change.

Important revisions have also been made

to the descriptions of each of the Principal

Risks to take account of key developments

and corresponding mitigations that were

introduced during the year. Full details of

the Group Principal Risks are available on

pages 71 to 81 .

* Safety remains SSE’s most important value, and management of this risk remains SSE’s highest priority.

** It should be noted that Energy Affordability is particularly closely linked to – and therefore impacted by – Politics, Regulation and Compliance and

Commodity Prices.

SSE’s 11 Group Principal Risks

Group Principal Risks

The graphic below illustrates SSE’s 11 Group Principal Risks positioned on a relative basis

against the output of the Principal Risk Self-Assessment process based on the residual risk

score (impact vs likelihood) of each risk and the potential impact on Group Viability based

on critical risk scenarios developed with business experts.

Key

Risk has increased in materiality

Risk has not changed significantly

Risk has reduced in materiality

70 SSE plc Annual Report 2022

STRATEGIC REPORT

Risk-informed decision making continued

Managing SSE’s Principal Risks continued

Risk Appetite Statement

No business is risk free and indeed the

achievement of SSE’s strategic objectives

necessarily involves taking risk. SSE will

however only accept risk where it is

consistent with its core purpose, strategy

and values; is well understood; can be

effectively managed; is in line with

stakeholder expectations and offers

commensurate reward.

The sectors in which SSE operates continue

to be subject to a high degree of political,

regulatory and legislative risk as well as

risks arising from other developments and

change including technology, the impact

of competition, stakeholders’ evolving

expectations and climate change.

Furthermore, each of SSE’s Business

Units have differing levels of exposure

to additional risks. For example, the

Transmission and Distribution businesses

are largely economically regulated and are

characterised by relatively stable, inflation

linked cash flows while the SSE Renewables

business benefits from cash flows linked

to government-mandated renewables

subsidies. Those Business Units that

generate and trade energy are also exposed

to significant medium to long-term energy

market and commodity risks in operational

and investment decision making.

The key elements of SSE’s Strategic

Framework – including the focus on

regulated energy networks and renewable

sources of energy, particularly clean

electricity, complemented by flexible

thermal generation and business energy

sales – and its financial objective in relation

to dividend growth are fully reflective of its

risk appetite.

Fundamentally:

• SSE’s strategy is to create value for

shareholders and society in a sustainable

way by developing, building, operating

and investing in the electricity

infrastructure and businesses needed

in the transition to net zero.

• SSE has a clear understanding of the

risks and opportunities in the Great

Britain and Ireland energy markets

and these markets therefore continue

to provide the Group’s geographic

focus, with any expansion into new

international markets being subject

to especially rigorous scrutiny and

ensuring that the appropriate

governance arrangements which are

consistent with the Group’s values and

strategic goals are in place.

• Safety is SSE’s first value and it has no

appetite for risks brought on by unsafe

actions, nor does it have any appetite

for risks brought on by insecure actions

including those relating to cyber security.

In areas where SSE is exposed to risks

for which it has little or no appetite,

even though it has implemented high

standards of control and mitigation, the

nature of these risks mean that they

cannot be eliminated completely.

In determining its appetite for specific risks,

the Board is guided by three key principles:

1. Risks should be consistent with SSE’s

core purpose, financial objectives,

strategy and values;

2. Risks should only be accepted where

relevant approvals have been attained

through the Governance Framework to

confirm appropriate reward is achievable

on the basis of objective evidence and in

a manner that is consistent with SSE’s

purpose, strategy and values; and

3. Risks should be actively controlled and

monitored through the appropriate

allocation of management and other

resources, underpinned by the

maintenance of a healthy business culture.

The Board has overall responsibility for

determining the nature and extent of the

risk it is willing to take to achieve strategic

objectives and for ensuring that risks are

managed effectively across the Group.

Viability Statement

SSE provides the energy needed today

while building a better world of energy

for tomorrow. It develops, builds, operates

and invests in low-carbon infrastructure

in support of the transition to net zero,

including onshore and offshore wind,

hydro power, electricity transmission and

distribution networks, localised flexible

energy systems alongside providing energy

products and services for businesses and

other customers. The delivery of SSE’s

purpose and execution of its strategy

depends on the skills and talent of a diverse

workforce, the quality of its assets and the

effective identification, understanding and

mitigation of risk.

As required within provision 31 of the UK

Corporate Governance Code, the Board

has formally assessed the prospects of the

Company over the next four financial years

to the period ending March 2026. The

Directors have determined that as this time

horizon aligns with the Group’s Net Zero

Acceleration Programme, which includes a

fully funded capital investment programme

to 2026, a greater degree of confidence

over the forecasting assumptions modelled

can be established.

In making this statement the Directors have

considered the resilience of the Group

taking into account its current position,

the Principal Risks facing the Group and

the control measures in place to mitigate

each of them. In particular the Directors

recognise the significance of the strong

balance sheet and total undrawn committed

lending facilities of £1.5bn – with £1.3bn

committed to March 2026 and £0.2bn

committed to October 2026. The Group is

an owner and operator of critical national

infrastructure and has a proven ability to

maintain access to capital markets during

stressed economic conditions. The Group

has demonstrated this through securing

£1.2bn of funding since April 2021 including

the issuance of a 1bn Euro Hybrid bond in

April 2022. Further detail relating to planned

funding is available in A6.3 Accompanying

Information to the Financial Statements in

the Annual Report and Accounts.

The Group has a number of highly attractive

and relatively liquid assets – including a

regulated asset base which benefits from a

strong regulated revenue stream as well as

the operational wind portfolio – which

provide flexibility of options. This has been

demonstrated through the success of the

programme of disposals set out by the Group

in June 2020 with £2.8bn secured to date.

To help support this Statement, over the

course of the year a suite of severe but

plausible scenarios has been developed for

each of SSE’s Principal Risks. These scenarios

are based on relevant real life events that

have been observed either in the markets

within which the Group operates or related

markets globally. Examples include critical

asset failure resulting in sustained impacts

to network assets (for Energy Infrastructure

Failure); changes to key government energy

policies (for Politics, Regulation and

Compliance); and the physical impacts

of climate change on distribution assets

through more frequent and increasingly

severe storm events (for Climate Change).

Scenarios are stress tested against forecast

available financial headroom and in

addition to considering these in isolation,

the Directors also consider the cumulative

impact of different combinations of

scenarios, including those that individually

have the highest impact.

Upon the basis of the analysis undertaken,

and on the assumption that the fundamental

regulatory and statutory framework of the

markets in which the Group operates does

not substantively change, and the Group

continues to be able to refund its debt at

maturity, the Directors have a reasonable

expectation that the Group will be able to

continue to meet its liabilities as they fall

due in the period to March 2026.

71SSE plc Annual Report 2022

Principal Risks and uncertainties

Group Principal Risks

Linkage to Strategy: Aligned to 2030 Goals:

CLIMATE CHANGE

What is the risk?

The risk that SSE’s strategy, investments or operations are deemed to have an unacceptable

future impact on the natural environment and on national and international targets to

tackle climate change.

Oversight

Group Executive Committee

Material influencing factors

• The impact of physical risks associated

with climate change, such as severe

adverse weather that causes damage or

interrupts energy supply of generation.

• The speed of technological

developments.

• Transitional risks relating to developments

in political and regulatory requirements

related to the products and services that

SSE provides.

• Ensuring the continuation of Large

Capital Projects which are fundamental

to Group net zero targets.

• Global and domestic policies including

those published by the UK’s Committee

on Climate Change relating to the 6th

carbon budget for the period 2032

and 2037.

• Political and regulatory engagement.

• Plans to transition to a decarbonised

energy system.

Key developments

• In its role as a Principal Partner to

the UK Government at COP26, SSE

highlighted the critical importance and

global relevance of the Group’s strategy

of creating value for shareholders and

society in a sustainable way required

in the transition to net zero. More

information on COP26 is available on

page 46  of the Sustainability Report.

• Within 2021/22, the Board considered

and approved accelerated science-

based greenhouse gases (GHG) emission

targets, revised business goals to

2030 aligned to the UN Sustainable

Development Goals (SDGs), the Net Zero

Acceleration Programme, and the Net

Zero Transition Plan.

• In March 2022, SSE published its Net

Zero Transition Plan. The Plan clearly

sets out for stakeholders the key actions

SSE will take to drive progress towards

its net zero ambitions and its interim

science-based targets aligned to a 1.5°C

pathway. SSE will disclose annual

progress against this plan through

Net Zero Transition Report.

Key mitigations

• Policy Link: SSE Climate Change Policy

and SSE Sustainability Policy.

• SSE provides transparent disclosures of its

governance around climate-related risks

and opportunities to allow its stakeholders

to properly assess its performance in

managing climate related issues.

• The Group Executive Committee is

responsible for implementing the Group

strategy set by the Board and driving

climate-related performance programmes

across the organisation. The Chief

Sustainability Officer is responsible for

advising the Board, Group Executive

Committee and businesses on climate-

related matters and provides support in

the implementation of relevant initiatives

across the Group.

• The TCFD Steering Group, which

consists of representatives from Finance,

Group Risk and Sustainability conducts

an annual review of the 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. To date,

performance has been assessed against

the framework of SSE’s 2030 Goals,

which the Remuneration Committee

is seeking to strengthen through its

current Policy review.

Linkage to Strategy

2030 Goals

Cut carbon

intensity by 80%

Champion a fair and

just energy transition

Develop

Increase renewable

energy output fivefold

Enable low-carbon

generation and

demand

Build Operate Invest

72 SSE plc Annual Report 2022

STRATEGIC REPORT

COMMODITY PRICES

What is the risk?

The risk associated with the Group’s exposure to fluctuations in both the physical volumes

and price of key commodities, including electricity, gas, CO

permits, oil and related

foreign exchange values.

Oversight

Group Risk Committee

Material influencing factors

• Global geopolitical events.

• Weather-associated seasonal

fluctuations in demand, supply and

generation capabilities which may not

be in line with historical trends, and

which may or may not be associated

with climate change both in Great Britain

and globally. Further detail is available on

page 31  of the Strategic Report.

• Generation technology advancements.

• Global and domestic political change.

• European generation outputs and

availability.

• International and national agreements

on climate change.

• International flows of fuel.

• Fluctuations in foreign exchange values.

• Fluctuations in the global supply and

demand of fuel.

• Global economic growth.

Key developments

• Managing the impacts of significant

global geopolitical events.

• Managing the impacts of significant

fluctuations in commodity prices, foreign

exchange values and strong economic

demand combined with more extreme

weather conditions, has increased

electricity demand and strained

commodity supply chain resulting in

wholesale energy prices reaching an

all-time high.

Key mitigations

• Policy Link: An asset-by-asset approach

to hedging strategy that ensures trading

positions cannot have a material impact

on SSE Group earnings. The latest

update on SSE’s hedging approach can

be found in the Financial Review section

of the Annual Report and Accounts.

• The Group Energy Markets Exposure

Risk Committee has operational

oversight of commodity positions;

reporting to the Board Energy Markets

Risk Committee that has responsibilty for

monitoring the ongoing effectiveness

of Group hedging arrangements. For

further details please see pages 162

and 163 .

• SSE uses VaR and PaR measures to

monitor and control exposures. Trading

limits are reviewed 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 Account.

Principal Risks and uncertainties continued

Group Principal Risks continued

Linkage to Strategy: Aligned to 2030 Goals:

73SSE plc Annual Report 2022

CYBER SECURITY AND RESILIENCE

What is the risk?

The risk that key infrastructure, networks or core systems are compromised or are

otherwise rendered unavailable.

Oversight

Group Risk Committee

Material influencing factors

• Software or hardware issues, including

telecom network, connectivity and

power supply interruption.

• Geopolitical events.

• Ineffective operational performance,

for example, breach of information

security rules or poor management

of resilience expertise.

• Employee and contractor understanding

and awareness of information security

requirements.

• Malicious cyber-attack.

Key developments

• Ensuring resilience of systems and

processes associated with divestments

as well as international mergers and

acquisitions.

• Ensuring the continued security

and resilience of Critical National

Infrastructure given the heightened threat

of malicious cyber-attack, particularly the

increased volume and sophistication of

ransomware attacks and the heightened

threat of cyber-attacks following the

Russian invasion of Ukraine.

Key mitigations

• Policy Link: SSE Cyber Security Policy

and SSE Data and Information

Management Policy.

• Key technology and infrastructure risks

are incorporated into the design of

systems and are regularly appraised with

risk mitigation plans recommended.

• SSE conducts regular internal and

third-party testing of the security of its

information and operational technology

networks and systems.

• Continued strengthening and

embedding of the cyber risks and

controls framework to continue to

identify threats and reduce exposures

through, for example, improved use of

data analytics and further migration

from unsupported systems.

• Significant longer term Security

Programme investment and planning

which seeks to strengthen the resilience

of the systems on which SSE relies.

• IT Service Assurance works with

individual Business Units to form

and agree appropriate service level

agreements for business-critical IT

services.

• Business continuity plans are reviewed

in response to changes in the threat to

the Group and regularly tested.

Linkage to Strategy: Aligned to 2030 Goals:

Linkage to Strategy

2030 Goals

Cut carbon

intensity by 80%

Champion a fair and

just energy transition

Develop

Increase renewable

energy output fivefold

Enable low-carbon

generation and

demand

Build Operate Invest

74 SSE plc Annual Report 2022

STRATEGIC REPORT

ENERGY AFFORDABILITY

What is the risk?

The risk that energy customers’ ability to meet the costs of providing energy, or their

ability to access energy services is limited, giving rise to negative political or regulatory

intervention that has an impact on SSE’s core regulated Networks and Renewables

businesses.

Oversight

Group Risk Committee

Material influencing factors

• Technology changes and innovations to

develop sustainable infrastructure and

energy solutions.

• Supply chain cost management.

• Public policies, including those aimed

at reducing carbon emissions and

energy consumption.

• Accessibility to energy and related

services for all.

• Increased focus on energy security in

response to current geopolitical events.

• Required investment in the upgrading of

the UK’s energy infrastructure to achieve

net zero.

• Political interventions.

• Macro-economic impacts on household

and business incomes, including the

removal of the energy price cap.

• Fluctuations in the cost of fuels.

• Supplier and customer failures and

related bad debt.

Key developments

• SSE remains committed to the supply of

affordable and accessible energy in its

customer businesses and responsive to

the needs of those who count on the

safe and reliable running of resilient

electricity networks.

• In 2020, SSE Airtricity established a

Generation Green Home Upgrade, the

first utility company to launch a retrofit

solution. In 2021 SSE supported almost

800 customers (including fuel poor

customers) to retrofit their homes and

improve energy efficiency by bringing

the homes up by an average BER of B2.

• Investment in indigenous, low-carbon

power sources and greater flexibility will

help reduce the amount of imported gas

the UK and Ireland needs.

Key mitigations

• Policy Link: SSE Sustainability Policy.

• SSE Airtricity continues to focus on

helping customers reduce their carbon

output and to save on energy costs.

Through partnerships with local

authorities, the Sustainable Energy

Authority of Ireland (SEAI) and others,

SSE Airtricity Energy Services has been

delivering large-scale energy efficiency

retrofit projects for homes across

Ireland.

• Robust stakeholder engagement across

Government, regulators and relevant

counterparties.

• SSE continues to advocate for

progressive policies that will help bring

forward necessary investment in

low-carbon infrastructure at lowest cost

to reduce customers’ exposure to gas

price volatility and deliver net zero

affordability.

Principal Risks and uncertainties continued

Group Principal Risks continued

Linkage to Strategy: Aligned to 2030 Goals:

75SSE plc Annual Report 2022

ENERGY INFRASTRUCTURE FAILURE

What is the risk?

The risk of national energy infrastructure failure, whether in respect of assets owned by

SSE or those owned by others which SSE relies on, that prevents the Group from meeting

its obligations.

Oversight

Group Executive Committee

Material influencing factors

• Severe adverse weather that causes

damage or interrupts energy supply or

generation.

• Longer term changes in climate patterns

cause sustained higher temperatures

that may result in lower rainfall and

reduced wind impacting renewable

generation output.

• Government policy regarding the

operation of the energy network which

relates to security of supply.

• Failures in any aspect of the Great Britain

national critical infrastructure.

• SSE invests in low-carbon infrastructure

in support of the transition to net zero.

• Continuing access to the European

energy markets and continued inclusion

of Northern Ireland in the all-island

Single Electricity Market.

• Appropriate asset management and

necessary upgrading works of both

generation and network assets.

• Malicious attack on the Great Britain

energy infrastructure.

• Energy network balancing mechanisms.

• Continued availability of competent

personnel.

• Continued availability of key systems.

Key developments

• In November 2021, SSE launched a Net

Zero Acceleration Programme to

accelerate clean growth and lead the

transition to net zero.

• The Net Zero Acceleration Programme is

the optimal pathway to value creation. It

positions SSE as a national clean energy

champion with the scale to contribute

around 20% of the UK’s revised 50GW

offshore wind target and over 20% of

upcoming UK electricity networks

investment, deploy flexible solutions to

keep the lights on, whilst exporting its

renewables capabilities overseas.

• With electricity demand expected to

more than double by 2050, regulated

electricity networks are at the heart of

the transition to net zero. SSEN

Transmission and SSEN Distribution

continue to form a key part of the

low-carbon electricity core of SSE. The

Net Zero Acceleration Programme could

increase total networks Regulated Asset

Value (RAV) to between £8bn and £10bn

by 2031.

Key mitigations

• Policy Link: Business Unit Asset

Management Policies.

• SSE assesses the climate impact on its

operations over the short, medium and

long term from the perspective of

market, policy or regulatory transition

risks and opportunities and the physical

risks of a changed climate.

• SSE’s dedicated Engineering Centre of

Excellence reviews and develops plans

to ensure the ongoing integrity of its

generation assets is maintained.

• Targeted investment plans to ensure the

ongoing health and integrity of network

assets.

• Crisis management and business

continuity plans are in place across the

Group. These are tested regularly and

are designed for the management of,

and recovery from, significant energy

infrastructure failure events. Where there

are material changes in infrastructure (or

the management of it) additional 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.

Linkage to Strategy: Aligned to 2030 Goals:

Linkage to Strategy

2030 Goals

Cut carbon

intensity by 80%

Champion a fair and

just energy transition

Develop

Increase renewable

energy output fivefold

Enable low-carbon

generation and

demand

Build Operate Invest

76 SSE plc Annual Report 2022

STRATEGIC REPORT

FINANCIAL LIABILITIES

What is the risk?

The risk that funding is not available to meet SSE’s financial liabilities, including those

relating to its defined benefit pension schemes, as these fall due under both normal and

stressed conditions without incurring unacceptable costs or risking damage to its

reputation.

Oversight

Group Risk Committee

Material influencing factors

• Ongoing commitment to an investment

grade credit rating.

• Global macro-economic changes and

subsequent volatility in foreign exchange

markets.

• Fluctuations in interest rates and inflation

which influence borrowing costs.

• Defined benefit pension scheme

performance including the impact of

fluctuations in gilt yields on the value of

scheme liabilities.

• Counterparty credit limit exposures.

Key developments

• Proceeds in the region of £2.8bn

secured against the disposal programme

target set in June 2020.

• In May 2021, HMRC awarded SSE a

formal Low Risk Rating which remains in

place for three years. The Low-Risk

Rating was awarded following HMRC

review of the risk and control

information relating to tax management

across the Group.

Key mitigations

• Policy Link: SSE Financial Management

Policy.

• Committed borrowings and facilities are

always available equal to at least 105% of

forecast borrowings over a rolling

6-month period.

• SSE seeks to maintain a diverse and

innovative portfolio of debt to avoid

over-reliance on any one market. This

allows it to build relationships with, and

create competition between, debt

providers.

• Each of SSE’s defined benefit pension

schemes has a Board of Trustees which

acts independently of the Group.

• The approval of all material counterparty

credit limits is a matter reserved for the

Board.

• To support the growth of green finance,

SSE also has pursued a strategy of

issuing green bonds to fund its net zero

investment plans. SSE has issued four

green bonds, with the total outstanding

at £2bn which reaffirms SSE’s position as

the largest issuer of green bonds in the

UK corporate sector.

Principal Risks and uncertainties continued

Group Principal Risks continued

Linkage to Strategy: Aligned to 2030 Goals:

77SSE plc Annual Report 2022

LARGE CAPITAL PROJECTS MANAGEMENT

What is the risk?

The risk that SSE develops and builds major assets that do not realise intended benefits or

meet the quality standards required to support economic lives of typically 25 to 60 years

within forecast timescales and budgets.

Oversight

Group Large Capital Projects Committee

Material influencing factors

• Appropriate contractual arrangements

which meet the requirements of any

jurisdiction in which SSE operates.

• New or unproven technology.

• Appropriate and effective budget

management.

• All aspects of supply chain management,

including those relating to human rights,

modern slavery and labour standards as

well as supply chain impacts associated

with new entities, new assets and a new

network structure created by joint

ventures and Brexit.

• Availability of competent contractors in

any jurisdiction in which SSE operates.

Key developments

• Over 2021/22 SSE undertook a major

project to ensure its Large Capital

Projects are designed and constructed

to enable the journey to net zero. From

the 1 of April 2022, a Sustainability

Assessment and Action Plan (SAAP) is

required for all new or early

development projects, ensuring

sustainability is incorporated into all

phases of major project development,

construction and operation. For further

details please see the Sustainability

Report.

• SSE’s Net Zero Acceleration Programme,

establishes a five year £12.5bn investment

plan to deliver the low-carbon energy

infrastructure.

• Continued Progress with SSE’s flagship

projects including Seagreen, Viking,

Shetland HVDC link and Dogger Bank.

• Between 2021 and 2026, SSE’s Net Zero

Acceleration Programme establishes a

plan to invest around £4.3bn in onshore

and offshore wind projects. In addition,

SSE has an important development

option for large scale, long duration

pumped hydro storage at Corie Glas in

the Scottish Highlands.

Key mitigations

• Policy Link: SSE’s Large Capital Projects

Governance Framework manual ensures

that all major capital investment projects

for the Group are governed, developed,

approved and executed in a consistent

and effective manner, with full

consideration of best practice project

delivery. The manual, which was

reviewed in detail during the year, with

support from a specialist third party,

provides common standards across the

Group and incorporates continuous

improvement practices.

• The Large Capital Project Services

function employs dedicated quality and

assurance teams who perform in-depth

quality reviews.

• 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.

Linkage to Strategy: Aligned to 2030 Goals:

Linkage to Strategy

2030 Goals

Cut carbon

intensity by 80%

Champion a fair and

just energy transition

Develop

Increase renewable

energy output fivefold

Enable low-carbon

generation and

demand

Build Operate Invest

78 SSE plc Annual Report 2022

STRATEGIC REPORT

PEOPLE AND CULTURE

What is the risk?

The risk that SSE is unable to attract, develop and retain an appropriately skilled, diverse

and responsible workforce and leadership team, and maintain a healthy business culture

which encourages and supports ethical behaviours and decision-making.

Oversight

Group Executive Committee

Material influencing factors

• Rewarding employee contributions

through fair pay and benefits.

• Acquisition of competent skills and

resources to support growth plans in

international markets.

• SSE embraces cultural diversity in the

workplace and recognition of the value

and benefit of having an inclusive and

diverse workforce.

• A responsible employer ethos. For full

details please see the Sustainability

Report.

• Clearly defined roles, responsibilities and

accountabilities for all employees.

• Availability of career development

opportunities and appropriate

succession planning that recognises

potential future skills shortages.

• Clear personal objectives and

communication of the SSE set of values.

• A focus on ethical business conduct and

creating a culture in which employees

feel confident to speak up when they

suspect wrongdoing.

• The health and wellbeing of all

employees (see the Sustainability Report

for further detail).

• Clear and well-structured employee

communications.

Key developments

• SSE has been a Living Wage accredited

employer in the UK since 2013 and paid

the Living Wage in Ireland since 2016. In

March 2021 SSE gained the Living Hours

employer accreditation. SSE also

continues to be a member of the Living

Wage Foundation’s Living Hours Steering

Group. Further details on page 60 .

• During 2021/2022 SSE undertook wide

ranging stakeholder engagement on its

just transition approach from key

stakeholders and through SSE’s 2021

all-employee survey. The findings of this

survey and the wider engagement with

other key stakeholders were used to

inform a new report, published in

September 2021 which focused on

moving from principles to action. This

follows on from SSE’s Just Transition

Strategy, published in November 2020.

• SSE’s Just Transition Strategy was the

world’s first business strategy for a Just

Transition to net zero. The new report

published in September 2021, outlines

SSE’s 20 commitments, ten

recommendations for industry and ten

recommendations for government to

support workers transition from high to

low-carbon careers. More information

on SSE’s Just Transition Strategy is

available on sse.com .

Key mitigations

• Policy Link: SSE Employment Policy and

SSE Whistleblowing Policy.

• SSE has a detailed Inclusion and Diversity

plan, progress against which is reviewed

and monitored by SSE’s Group Executive

Committee on a regular basis. Further

details are available on pages 64 and

65  and on page 138  of the

Directors’ report.

• SSE Governance arrangements,

including those relating to JV and

Partner Management.

• There are a wide range of tools and

services available to all employees to

support mental health and wellbeing,

including those provided as part of the

Employee Assistance Programme.

Further details on careers.sse.com/

employee-benefits .

• “Doing the Right Thing, a guide to ethical

business conduct”, explicitly outlines the

steps employees should take to ensure

their day-to-day actions and decisions

are consistent both with SSE’s values and

ethical business principles. SSE

employees can report incidents of

wrongdoing through both internal and

external mechanisms. SSE uses an

independent “Speak Up” phone line and

email service, hosted externally by

SafeCall, through which incidents can be

reported.

• SSE’s business leaders are required to

undertake regular succession planning

reviews. At a Group level, SSE continues

to develop its approach to the

management of talent.

Principal Risks and uncertainties continued

Group Principal Risks continued

Linkage to Strategy: Aligned to 2030 Goals:

79SSE plc Annual Report 2022

POLITICS, REGULATION AND COMPLIANCE

What is the risk?

The risk from changes in obligations arising from operating in markets which are subject

to a high degree of regulatory, legislative and political intervention and uncertainty.

Oversight

Group Risk Committee

Material influencing factors

• SSE’s most significant contribution is to

align with the Paris Agreement goal and

aim to achieve net zero greenhouse gas

emissions by at least 2050.

• Material changes to regulatory

frameworks in any jurisdiction in which

SSE operates.

• Government intervention into the

structure of the energy sector in any

jurisdiction in which SSE operates.

• Constitutional uncertainty in any

jurisdiction in which SSE operates.

• Changes in financial, employment,

safety and consumer legislation and

regulation and the impact of these

changes on business-as-usual activities

in any jurisdiction in which SSE operates.

Key developments

• In April 2022, the UK Government

published the British Energy Security

Strategy which builds upon the Prime

Minister’s Ten Point Plan for a Green

Industrial Revolution. SSE is working to

deliver the renewables capacity, the

network infrastructure, lower carbon

thermal generation and energy storage

needed to meet the ambition of the

paper.

• SSE’s Net Zero Transition Plan, published

in March 2022, outlines SSE’s strategy to

develop, build, operate and invest in

low-carbon electricity infrastructure for

many decades to come whilst

maintaining high standards of safety and

reliability for energy consumers. More

information on SSE’s Net Zero Transition

Plan is available on sse.com .

Key mitigations

• Policy Link: SSE Political and Regulatory

Engagement Policy.

• The Group has dedicated Corporate

Affairs, Regulation, Legal and

Compliance departments that provide

advice, guidance and assurance to each

business area regarding the

interpretation of political, regulatory and

legislative change. These teams take the

lead in engagement with regulators,

politicians, officials, and other such

stakeholders.

• SSE has a clear Political Engagement

Policy that sets out principles for any

employees who make representations to

institutions of governments or to

legislatures on the Company’s behalf.

• SSE Governance arrangements,

including those relating to JV and

Partner Management.

• The Group puts in place dedicated

project teams to manage all aspects of

significant regulatory and legislative

change.

• There is regular engagement with the

Board and Group Executive Committee

on political and regulatory

developments which may impact SSE’s

operations or strategy. Further details are

available on page 132  of the Directors’

Report.

Linkage to Strategy: Aligned to 2030 Goals:

Linkage to Strategy

2030 Goals

Cut carbon

intensity by 80%

Champion a fair and

just energy transition

Develop

Increase renewable

energy output fivefold

Enable low-carbon

generation and

demand

Build Operate Invest

80 SSE plc Annual Report 2022

STRATEGIC REPORT

SAFETY AND THE ENVIRONMENT

What is the risk?

The risk of harm to people, property or the environment from SSE’s operations.

Oversight

Group Safety, Health and Environment

Committee

Material influencing factors

• Clear and appropriately communicated

safety processes.

• Regular and documented training.

• Adverse weather.

• The size, scale, complexity and number

of projects under way.

• Challenging geographic locations.

• Appropriate task and asset risk

assessment.

• Safety culture – “if it’s not safe, we don’t

do it”.

• Clear, effective and regular

communications of all relevant safety

updates.

• Competent employees and contractors.

Key developments

• In 2021/22, the Safety, Sustainability,

Health and Environment Advisory

Committee (SSHEAC) reviewed the

Safety, Health and Environment Strategy

for the next five years. As part of the

SSHEAC review the following focus areas

were set out (a) strengthening of

controls and assurance; (b) enablers to

help people do the right thing; and (c)

drive progress with SSE’s eight Enduring

Goals for safety.

• The remit of the Safety, Sustainability,

Health and Environment Advisory

Committee (SSHEAC) was expanded in

the year to oversee SSE’s climate

adaptation and resilience plans.

Key mitigations

• Policy Link: SSE Safety and Health Policy

and SSE Environment Policy.

• Safety is the Group’s No. 1 value with

Board oversight being provided by the

Safety, Sustainability, Health and

Environment Advisory Committee

(SSHEAC).

• Crisis management and business

continuity plans are in place across the

Group. These are tested regularly and

are designed for the management 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 Centre of

excellence reviews and develops plans

to ensure that the integrity of its

generation assets is maintained.

Principal Risks and uncertainties continued

Group Principal Risks continued

Linkage to Strategy: Aligned to 2030 Goals:

81SSE plc Annual Report 2022

SPEED OF CHANGE

What is the risk?

The risk that SSE is unable to keep pace with the speed of change affecting the sector and

markets in which it operates and so fails to meet the evolving expectations of its

stakeholders or achieve its strategic objectives.

Oversight

Group Executive Committee

Material influencing factors

• Geopolitical events.

• Fast developing customer needs and

expectations in relation to efficient,

innovative and flexible products and

services.

• Technological developments and

innovation.

• Net-zero strategic goals.

• Increased competition from market

entrants including international oil

companies.

• Longer term capital investment plans

and budgets.

• The size, scale and number of change

programmes underway, including those

relating to regulatory or legislative

requirements in any jurisdiction in which

SSE operates.

• Governance and decision-making

frameworks, including those relating to

JV and Partner Management.

Key developments

• SSE is spending £7m a day on assets and

infrastructure to decarbonise the energy

system through the Net Zero

Acceleration Programme and actively

progressing plans to secure flexible and

reliable power generation with CCS and

pumped storage hydro projects in

development.

• The 2021/22 year marked several

significant project milestones for SSE

Renewables, including progress made at

Seagreen, the world’s deepest, fixed

bottom wind farm, and offshore

construction commencing at Dogger

Bank, currently the world’s biggest

offshore wind farm.

• Plans to export SSE’s significant

capabilities to overseas markets gained

momentum with the acquisition of an

80% interest in an offshore wind

development platform in Japan. The

new joint ownership company, SSE

Pacifico, will pursue the development of

offshore wind projects in Japan.

Key mitigations

• Policy Link: SSE Operating Model Policy.

• The Board sets the risk appetite of the

Group and approves and regularly

reviews the Group’s commercial

strategy, business development

initiatives and long-term options

ensuring alignment of risk appetite and

strategic objectives.

• SSE’s revised Group operating model has

been designed to ensure dynamic and

efficient decision-making, empowered

and accountable delivery of Business

Unit strategies and to fulfil SSE’s purpose

to provide energy needed today while

building a better world of energy for

tomorrow. Details of SSE’s decision

making framework are available on

page 134  of the Directors Report.

• The Group Executive Committee is

responsible for ensuring that Business

Unit strategies are consistent and

compatible with the overarching Group

strategy and its vision to be a leading

energy provider in a net zero world.

Linkage to Strategy: Aligned to 2030 Goals:

Linkage to Strategy

2030 Goals

Cut carbon

intensity by 80%

Champion a fair and

just energy transition

Develop

Increase renewable

energy output fivefold

Enable low-carbon

generation and

demand

Build Operate Invest

82 SSE plc Annual Report 2022

STRATEGIC REPORT

Financial review

Delivering for

shareholders

Financial performance in 2021/22 underscores the value-

creation potential of SSE’s Net Zero Acceleration Programme.

The strong operational performance

outlined in this Annual Report and Accounts

has enabled us to meet our financial

objectives in what was a challenging year.

And SSE’s conviction that a deliberately-

integrated and well-balanced group of

market-based and economically-regulated

businesses offers the optimal route to value

creation for shareholders has again been

borne out in 2021/22.

We are proposing payment of a full-year

dividend of 85.7p, in line with plan, and we

remain committed to our existing five-year

dividend plan to 2023, which targets

dividend increases in line with RPI each

year as set out on page 4 .

We completed our £2bn-plus disposals

programme announced in June 2020

with the sale of our remaining financial

stake in SGN for nearly £1.3bn in cash

proceeds. Overall we achieved headline

consideration of over £2.8bn from our

disposals programme, significantly in

excess of the original £2bn target and

this is reflected in the disparity in adjusted

and reported metrics for the year.

Over the course of the year we invested

a record level of £2.1bn in the assets and

infrastructure needed to maintain a 1.5°C

pathway on global warming. Thanks to

strong operational performance, adjusted

operating profit increased by 15% to around

£1.5bn. And adjusted EPS was up 22% to

95.4p reflecting our strong performance in

the year.

We have now updated our adjusted EPS

CAGR target for 2026 from between 5-7%

to between 7-10% due to confidence

derived from strong delivery in 2021/22;

higher inflationary forecasts; anticipation

of continued volatile and high energy

commodity prices; and evidence of

increased value creation potential from

flexibility provided by SSE’s thermal and

hydro generation, and gas storage assets.

We have financed ourselves robustly in

uncertain times with good liquidity. We

have a stable debt profile and our financing

strength has enabled us to be nimble in the

acquisition and partnering decisions we

have made.

Our balance sheet remains strong,

supported as it is by word-class assets

and investment-grade credit metrics. The

credit rating agencies reviewed our Net

Zero Acceleration Programme and we were

pleased with their positive response. SSE’s

S&P credit rating remains at BBB+ ‘stable

outlook’ and our Moody’s rating remains

at Baa1, having been updated to ‘stable

outlook’ after the announcement of our

plans in November 2021.

Our financial strength is critical in enabling

us to take forward projects of the size and

scale society needs, such as Berwick Bank

which will be larger even than the world’s

largest wind farm that we are currently

building at Dogger Bank.

Overall, this year has underscored the

advantages of a balanced, integrated

business – giving investors strong returns

in clearly volatile times and leaving us

well positioned to take forward emerging

opportunities across the clean energy

value chain.

Gregor Alexander

Finance Director

24 May 2022

83SSE plc Annual Report 2022

Group Financial Review

Year to 31 March 2022

This Group Financial Review sets out the financial performance of the SSE Group for the year ended 31 March 2022. See also the

separate sections on Group Financial Outlook, 2022/23 and beyond and Supplemental Financial Information.

The definitions SSE uses for adjusted measures are consistently applied and are explained in the Alternative Performance Measures

section of this document, before the Financial Statements.

Key financial metrics

(continuing operations)

Adjusted Reported

March

2022

£m

March

2021

£m

March

2022

£m

March

2021

£m

Operating profit from continuing operations 1,536.8 1,333.5 3,755.4 2,654.9

Net Finance costs (372.8) (384.6) 273.2 (236.9)

Profit before Tax 1,164.0 948.9 3,482.2 2,418.0

Current Tax charge (107.1) (85.9) (882.8) (224.3)

Effective current tax rate (%) 9.2 9.1 25.4 9.3

Profit after Tax on continuing operations 1,056.9 863.0 2,599.4 2,193.7

Less: hybrid equity coupon payments (50.7) (46.6) (50.7) (46.6)

Profit after Tax from continuing operations attributable to ordinary shareholders 1,006.2 816.4 2,548.7 2,147.1

EPS from continuing operations (pence) 95.4 78.4 241.6 206.3

Number of shares for basic/reported and adjusted EPS (million) 1,055.0 1,040.9 1,055.0 1,040.9

Shares in issue at 31 March (million)** 1,067.6 1,043.0 1,067.7 1,043.0

* Comparative information has been re-presented to reflect the classification of Scotia Gas Networks as a discontinued operation and the changes to segmental

disclosures made in the year (see note 1.2 of the Financial Statements).

** Excludes treasury shares.

Dividend per Share

March

2022

March

2021

Interim Dividend (pence) 25.5 24.4

Final Dividend (pence) 60.2 56.6

Full Year Dividend (pence) 85.7 81.0

84 SSE plc Annual Report 2022

STRATEGIC REPORT

Financial review continued

Operating profit performance 2021/22

Business-by-business segmental

Adjusted Reported

March

2022

£m

March

2021

£m

March

2022

£m

March

2021

£m

Operating profit/(loss)

SSEN Transmission 380.5 220.9 380.5 220.9

SSEN Distribution 351.8 275.8 351.8 275.8

Electricity networks total 732.3 496.7 732.3 496.7

SSE Renewables 568.1 731.8 427.8 856.0

SSE Thermal 306.3 160.5 630.1 775.3

Gas Storage 30.7 (5.7) 125.4 2.8

Thermal Total 337.0 154.8 755.5 778.1

Business Energy (GB) (21.5) (24.0) (21.5) (3.9)

SSE Airtricity (NI and Ire) 60.4 44.0 60.4 50.0

Energy Customer Solutions Total 38.9 20.0 38.9 46.1

Energy Portfolio Management (16.8) 18.4 2,083.6 608.5

Distributed Energy (10.9) (27.0) (29.2) (76.1)

Neos (16.1) (2.8) (140.0) (14.1)

Corporate unallocated (95.7) (58.4) (113.5) (40.3)

Total operating profit from continuing operations 1,536.8 1,333.5 3,755.4 2,654.9

Net finance costs (372.8) (384.6) (273.2) (236.9)

Profit before tax from continuing operations 1,164.0 948.9 3,482.2 2,418.0

Discontinued operations:

Gas Production Assets 101.4 33.0 (19.4) 33.0

Scotia Gas Networks 21.0 173.0 495.4 88.6

Total operating profit/(loss) from discontinued operations 122.4 206.0 476.0 121.6

* Comparative information has been re-presented to reflect the classification of Scotia Gas Networks as a discontinued operation and the changes to segmental

disclosures made in the year (see note 1.2 of the Financial Statements).

In order to present the financial results and performance of the Group in a consistent and meaningful way, SSE applies a number of

adjusted accounting measures throughout this financial report. These adjusted measures are used for internal management reporting

purposes and are believed to present the underlying performance of the Group in the most useful manner for ordinary shareholders and

other stakeholders.

The definitions SSE uses for adjusted measures are explained in the Alternative Performance Measures section before the Financial

Statements. A reconciliation of adjusted operating profit by segment to reported operating profit by segment can be found in note 5.1(ii)

to the Financial Statements.

Segmental EBITDA results are included in note 5.1(v) to the Financial Statements.

85SSE plc Annual Report 2022

Impact from market volatility

The Group reduces direct exposure to

short term commodity price volatility

through its business mix, the disciplined

application of its clearly defined approach

to hedging and low VAR trading limits.

Nevertheless, the higher and more volatile

gas and power market prices, combined

with increasing inflation rates have had

some impact upon SSE’s businesses which

can be summarised as follows:

SSEN Transmission and SSEN Distribution

operate under a regulatory price control

framework which is set by Ofgem. Returns

under this framework have no direct

relationship to gas and power market

prices, however both allowed revenues

and Regulated Asset Values are index linked

(Transmission to CPI(H). Distribution to RPI

(for ED1 price control) and CPI(H) (for ED2

price control)).

Within SSE Renewables, in periods where

wind volume output was significantly

lower than expected, excess forward sale

contracts had to be ‘bought back’ in the

market at higher prices, further reducing

the trading result.

For SSE Thermal (as well as the Hydro

plant within SSE Renewables), value has

come from the ability of the plant to

respond to market conditions and provide

vital balancing services to provide security

of supply and flexibility in higher, more

volatile market conditions. The current

market conditions are therefore generally

positive for these businesses, although this

is dependent upon plant availability at times

of system stress.

Both EPM and Gas Storage, through

their respective exposure to unsettled

commodity contracts and physical gas

inventory, have experienced significant

positive unrealised mark-to-market

remeasurement gains in the year. However,

EPM is not expected to realise significant

gains upon settlement of the contracts,

as they are largely offset by significant

adversely marked-to-market ‘own use’

operating derivatives which are excluded

from disclosure as remeasurements under

IFRS 9. In addition, for EPM, market volatility

and retail energy supplier failure has resulted

in a significant increase in the collateral

requirements necessary to allow the

businesses to continue to trade with

counterparties and on exchanges as

required. To date these increased collateral

requirements have generally been managed

by issuing new Letters of Credit, Guarantees

and Performance Bonds, however exchange

cash collateral requirements have been

subject to volatility in recent months. The

Group closely monitors this and maintains

more than sufficient liquidity to manage

these increased collateral requirements.

SSE Business Energy and SSE Airtricity

(aside from Northern Ireland, where SSE

Airtricity is subject to a regulatory pricing

mechanism) are not subject to a regulated

price cap and therefore variable tariffs are

adjusted dynamically and fixed tariff rates

are reset for new customers as wholesale

costs increase or decrease. Although the

businesses are insulated against gas price

rises insofar as they are fully hedged, there

are external circumstances that would

result in hedge adjustments such as

weather, supplier failures and broader

economic conditions. A dynamic

forecasting approach has been in place to

quickly respond to volume changes. In

relation to Airtricity, vertical integration of

generation and customer businesses in the

Irish market limits commodity exposures

with some benefit received through REFIT

receipts on legacy wind assets.

Finally, SSE Group is well funded with

a strong investment grade credit rating,

a high proportion of the £8.6bn adjusted

net debt (c.96%) is fixed rate and the long

average maturity of SSE’s debt is 6.8 years.

The Group has been successful in

challenging debt markets, issuing a €1bn

Hybrid and £350m Private Placement post

year-end. SSE’s balance sheet strength

allows the Group to meet additional

collateral increases on higher and volatile

commodity contracts, while the high

proportion of fixed rate debt provides robust

financing in an inflationary environment.

Operating profit

Adjusted and reported operating profit/

losses in SSE’s business segments for the

year to 31 March 2022 are set out below;

comparisons are with the same period to

31 March 2021 unless otherwise stated.

SSEN Transmission: Adjusted and reported

operating profit increased by 72% to

£380.5m. This was mainly due to higher

allowed revenues in FY22 (the first year

of the RIIO-T2 price control) resulting from

an increased proportion of higher totex

allowances received through the ‘fast

money’ mechanism, and an over-recovery

of £9m, as timing impacts passed from the

Electricity System Operator to Transmission

Operators. This higher revenue was partially

offset by increases in operating costs and

depreciation charges, as the business

continues to expand its operational

capability and asset base.

SSEN Distribution: Adjusted and reported

operating profit increased by 28% to

£351.8m compared to £275.8m which

was lower than expected due to a c.£40m

impact of coronavirus in FY21 which will be

recovered in FY23. In FY22, higher allowed

revenue and an over-recovery of £17m

were partially offset by a £51m increase in

operating costs, c£40m of which related to

expenditure incurred managing the impact

of several severe weather events during

the year.

SSE Renewables: Adjusted operating profit

decreased by 22% to £568.1m, compared to

£731.8m, mainly as developer profits of

£64m from a 10% stake disposal in Dogger

Bank C on 10 February 2022 were lower than

the £226m of developer profits in the prior

year. Excluding developer profits, operating

profit was broadly flat as exceptionally still

and dry weather in the summer months led

to a decrease in output of 7% or 0.7TWh

compared to the prior year, offset by strong

financial performance from hydro and

pumped storage in volatile markets. The

financial impact of lower output – equivalent

to 13% or 1.4TWh below planned levels

– included the cost of buying back hedged

volumes at high market prices.

In addition to the factors outlined above,

reported operating profit of £427.8m

compared to £856.0m which included

one-off exceptional gains of £214.5m. In

addition, reported operating profit was also

impacted by a £21.5m increase in joint

venture share of interest and tax charges

and the impact of the UK Corporation tax

rate change on deferred tax balances in

joint ventures.

SSE Thermal: adjusted operating profit

increased 91% to £306.3m, compared to

£160.5m. This increase was mainly due to

higher achieved spark spread, including

buying back forward power sales on high

wind days, and strong performance in the

balancing market. This was partially offset

by non-recurring developer profits on the

disposal of a 50% stake in Slough Multifuel

in the prior period, lower profit contribution

following divestment of Ferrybridge

Multifuel and increased depreciation

following the part-reversal of historic

impairment charges at the half year.

Reported operating profit decreased to

£630.1m from £775.3m in the prior year

which had included one-off gains of

£669.7m on the sale of Multifuel Energy

and £21.3m on Slough Multifuel offset by

a £58.1m exceptional impairment charge

for Great Island CCGT. In addition to the

factors affecting operational performance

highlighted above, the reported result

reflects the associated impairment reversal

of £331.6m to the carrying value of SSE’s

CCGT assets following higher forward price

curves, alongside other minor tax and

interest movements.

86 SSE plc Annual Report 2022

STRATEGIC REPORT

Financial review continued

Gas Storage: Adjusted operating profit of

£30.7m, compared with a prior year loss of

£(5.7)m. SSE continues to operate the plant

on a merchant basis, with the ability to

capture positive gas price spreads during

periods of heightened market volatility.

The operating result for the period reflects

continued volatile market conditions, which

allows Gas Storage to optimise the value

from storage of physical gas against

changes in the spread between summer

and winter prices.

Reported operating profit of £125.4m

included an impairment reversal of £97.3m

as a result of improved operating prospects

given projected gas price volatility, together

with a £(2.6)m revaluation loss on gas held

in storage, compared to a revaluation gain

of £8.5m in the prior year.

SSE Business Energy: Adjusted operating

loss of £(21.5)m has slightly improved

compared with an adjusted operating loss

of £(24.0)m last year. Both years have been

impacted by significant volatility; the prior

year result included approximately £24m

of losses on early settlement of excess

commodity hedges linked to Covid, while

the current year has borne non-recoverable

BSUoS costs of around £20m and £14m

of additional mutualisation costs due to

a significantly higher number of supplier

failures. These were partially offset by an

improvement in bad debt recovery of £14m

as the economy emerged from the impact

of coronavirus. The underlying business

remains stable with a solid customer book.

Reported operating loss was also £(21.5)m,

compared to £(3.9)m loss in the prior year

which included a £20.1m release of excess

bad debt provisioning originally expected

to arise from coronavirus impact.

SSE Airtricity: Adjusted operating profit

increased to £60.4m compared to £44.0m

in the previous year, with the increased

profit due to £51m of higher generation

receipts on wind assets which are

contracted through Airtricity. This was

partially offset by a £25m adjustment in

relation to historic use of system costs.

The business has grown customer numbers

year on year but seen a drop in customer

margins as energy prices increased;

commodity costs increased significantly in

the year and were managed through our

approach to hedging and where necessary

through tariff increases.

Reported operating profit was also £60.4m,

compared to £50.0m profit in the prior year

which included a £6.0m release of excess

bad debt provisioning originally expected

to arise from coronavirus impact.

Energy Portfolio Management: Adjusted

operating loss of £(16.8)m, compared to an

adjusted operating profit of £18.4m which

included a net £20.4m income from legacy

Gas Production hedges. The operating loss

is primarily due to a legacy power contract

with Ovo which fully unwound during

the year in a higher commodity price

environment. EPM continues to expect

to earn a small adjusted operating profit

through service provision to those SSE

businesses requiring access to energy

markets.

Reported operating profit of £2,083.6m

reflects a material net remeasurement gain

in the year on unsettled fair value forward

commodity contracts, under IFRS 9. In line

with reporting in previous years, this result

excludes an adverse remeasurement of ‘own

use’ contracts of approximately £2.0bn

which largely offsets the IFRS 9 gain.

SSE Distributed Energy: An adjusted

operating loss of £(10.9)m was reported,

compared with an adjusted operating loss

of £(27.0)m which included an impact

from coronavirus. This reporting segment

includes the result from the Contracting and

Rail business, which remains reported within

this segment up to the point of disposal on

30 June 2021. The segment no longer

includes Out of Area Networks, which

is now reported within the Distribution

segment, and Neos Networks JV, which

has been separately presented below.

Reported operating loss of £(29.2)m

reflects the above factors together with

an exceptional loss on disposal of £18.3m

upon completion of the sale of Contracting

and Rail.

Neos Networks JV: SSE’s remaining 50%

share in the Telecoms business Neos

Networks recorded an adjusted operating

loss of £(16.1)m compared with £(2.8)m in

FY21. The reported loss of £(140.0)m

includes both an impairment of £(106.9)m

and an adjustment to original transaction

consideration.

Corporate unallocated: Adjusted operating

loss of £(95.7)m compared with £(58.4)m,

reflecting a natural reduction in external

revenues as enduring service agreements

with recently divested businesses roll-off,

together with higher central costs including

increased Group IT costs as the Group

accelerates its investment in digitalisation.

Reported operating loss of £(113.5)m reflects

the above factors together with a £(13.1)m

revaluation adjustment to the legacy Gas

Production decommissioning provision, part

of Corporate unallocated following the

business disposal in the year, and other

minor tax and interest movements.

Adjusted earnings per share

To monitor its financial performance over

the medium term, SSE reports on its

adjusted earnings per share measure. This

measure is calculated by excluding the

charge for deferred tax, interest costs on

net pension liabilities, exceptional items,

valuation movements on the retained Gas

Production decommissioning liabilities,

depreciation on fair value adjustments and

the impact of certain remeasurements.

SSE’s adjusted EPS measure provides an

important and meaningful measure of

underlying financial performance. In

adjusting for the items mentioned, adjusted

EPS reflects SSE’s internal performance

management, avoids the volatility

associated with mark-to-market IFRS 9

remeasurements and means that items

deemed to be exceptional due to their

nature and scale do not distort the

presentation of SSE’s underlying results.

For more detail on these and other

adjusted items please refer to the

Adjusted Performance Measures

section of this statement.

In the year to 31 March 2022, SSE’s

adjusted earnings per share on continuing

operations was 95.4p. This compares

to 78.4p for the year to 31 March 2021

(restated for SGN disposal – 87.5p

previously reported) and reflects the

movements in adjusted operating profit

outlined in the section above.

Group financial outlook –

2022/23 and beyond

Key points for 2022/23

The group has enjoyed a strong start to

delivery of the targets it set out in its Net

Zero Acceleration Programme with thermal

and hydro plant performing particularly

well in the second half of 2021/22.

SSE’s focus continues to be on long-term,

sustainable financial performance. Through

high levels of investment expected in

Transmission, a step up in profits expected

in Thermal generation and an expected

return to normal weather for Renewables,

SSE is confident about delivery of strong

earnings growth for this financial year,

specifically:

87SSE plc Annual Report 2022

• For SSEN Transmission: SSE expects to

report strong growth in adjusted EBIT

with a 20% increase in allowed revenues

under the RIIO-T2 price control, as the

network continues to expand its

operational capability and asset base;

• For SSE Renewables: assuming normal

weather and plant availability, SSE expects

to report generation output of 11.4TWh,

including 0.9TWh from Seagreen; and

• For SSE Thermal and Gas Storage:

assuming normal plant availability

and excluding the benefit of Keadby 2,

SSE expects to report adjusted EBIT for

2022/23 of at least £337m, the same

level as 2021/22.

Taking the above into account SSE currently

expects to report full year adjusted earnings

per share of at least 120p.

The Group remains committed to its

five-year dividend plan to March 2026 and is

recommending a 2022/23 full-year dividend

of 85.7 pence in line with that plan.

Capital expenditure and investment is

expected to total in excess of £2.5bn in

2022/23 (including acquisitions but net of

project finance development expenditure

refunds) assuming the recent Southern

European acquisition successfully

completes as planned. This is consistent

with maintaining SSE’s target net debt to

EBITDA ratio of 4.5 times or below.

Update to net zero

acceleration programme

In November 2021 SSE set out that it

expected to deliver adjusted EPS CAGR

on the 87.5 pence reported for the year

ended March 2021 (before restatement) of

between 5-7% in the period to 31 March

2026. This was underpinned by index-linked

revenue streams driving 60% of EBITDA and

was after a modelling assumption of a 25%

minority interest disposal of Transmission

and Distribution during FY24.

SSE now expects to deliver an adjusted EPS

CAGR of between 7-10%* over the same

period as a result of: confidence derived

from strong delivery in 2021/22; higher

RPI forecasts; higher and more volatile

energy commodity prices; and evidence

of increased value creation potential from

flexibility provided by SSE’s Thermal and

Hydro generation, and gas storage assets.

* Using the same baseline adjusted EPS of 87.5p

(before restatement for SGN disposal) and

continuing to model a 25% minority interest disposal

of Transmission and Distribution during FY24.

Disposal of minority

stake in networks

SSE continues to regard partnering as vital

for the future and an important means

of unlocking future opportunities in its

businesses.

In line with the modelling assumption

in its Net Zero Acceleration Programme,

announced in November 2021, the Group

has recently initiated a sales process with

banking advisers for a 25% share of the SSEN

Transmission business which is expected

to formally commence in Summer 2022.

Given the SSEN Distribution business is

currently progressing its ED2 price control

negotiations, a decision on the timing of a

similar stake sale will be made later in the

financial year.

While these are high-quality, core

businesses and SSE will retain control,

the scale of potential growth and the

associated investment required mean that

bringing in non-controlling partners will

create greater long-term value by enabling

SSE to harness this significant growth whilst

maintaining an attractive balance of capital

allocation across the Group.

Progress in SSE’s capital

expenditure programme

During the year to March 2022, SSE’s

adjusted investment, capital and acquisition

expenditure, which now includes equity

expenditure on acquisitions per above,

totalled £2,073.7m, an increase of 127%

compared with the prior year and

representing the highest ever investment

recorded by the Group. Almost £2bn of this

was invested within SSE’s Renewables,

Thermal and Networks businesses, all

which are fundamental to delivery of the

UK’s net zero ambitions. In summary:

• Excellent progress was made in SSEN

Transmission’s investment programme,

with a total of £614.4m invested in

building out and reinforcing the network

in the North of Scotland. Work was

completed on Tealing Substation

Extension, required to facilitate the

connection of Seagreen to the grid.

In addition, construction is well under

way on the link between Shetland and

mainland Scotland, which will see a

submarine cable laid in order to transmit

power beneath the seabed between

converter stations at Weisdale Voe on

Shetland and Noss Head in Caithness.

Supplemental financial information

Adjusted investment and capex summary

March

2022

Share %

March

2022

£m

March

2021

£m

SSEN Transmission 30 614.4 435.2

SSEN Distribution 18 364.8 350.8

Regulated networks total 48 979.2 786.0

SSE Renewables 39 811.0 294.3

SSE Thermal 6 129.3 106.5

Gas Storage – 2.1 1.9

Thermal Total 6 131.4 108.4

Energy Customer Solutions 2 39.8 31.2

Energy Portfolio Management – 2.4 2.1

Gas Production* – – 26.8

Distributed Energy 1 26.6 17.6

Corporate unallocated 4 78.7 74.2

Adjusted investment and capital expenditure,

before refunds 100 2,069.1 1,340.6

Project finance development expenditure refunds (136.7) (428.6)

Adjusted investment and capital expenditure 1,932.4 912.0

Acquisitions 141.3 –

Adjusted investment, capital and

acquisitions expenditure 2,073.7 912.0

* Discontinued operation, the Gas Production business was disposed on 14 October 2021.

88 SSE plc Annual Report 2022

STRATEGIC REPORT

Financial review continued

• SSEN Distribution continued its capital

investment programme across both the

north and south networks, with a total

spend of £364.8m, mainly on strategic

investment and construction in both the

north and south regions, as well as

progressing the replacement of the

submarine cable between Skye and

Harris. All of which is designed to deliver

improvements for customers.

• Significant further capex was deployed

on SSE Renewables’ flagship projects,

including nearly £500m investment on

Seagreen, Scotland’s largest offshore

wind farm, and around £100m on Viking

onshore wind farm, which will be one of

Europe’s most productive onshore wind

farms, once complete. In addition,

progress was made at the 30MW Lenalea

onshore wind farm in County Donegal

and the 38MW Gordonbush Extension

onshore wind farm in Sutherland was

commissioned during the year.

• Investment in SSE Thermal was focused

on the final stages of the 893MW Keadby

2 CCGT, with commissioning started in

October 2021 and full commercial

operation expected 1 October 2022.

In April 2022, an incident occurred on a

sub-contractor S7000 installation vessel

which is contracted to the Seagreen

offshore wind farm construction project.

The project team are working closely with

contractors to manage and mitigate project

impacts and the project is currently

expected to achieve first power in July 2022

and full commercial operation in April 2023.

SSE’S hedging position

at 18 May 2022

SSE has an established approach to hedging

through which it generally seeks to reduce

its broad exposure to commodity price

variation at least 12 months in advance of

delivery. As market conditions change, SSE

may decide to alter its hedging approach in

response to any changes in its exposure

profile. SSE will continue to provide a

summary of its current hedging approach,

including details of any changes in the

period, within its Interim and Full-year

Results statements.

A summary of the hedging position for

each of SSE’s market-based businesses

is set out above.

Volumes are based on average expected

output, and the contracted hedge price is

either at 31 March or 18 May as noted in the

table above.

The expected volumes include anticipated

volumes from SSE’s wind farms in

construction, Seagreen (pre CFD) and Viking.

No volumes have been included for Dogger

Bank wind farm. Seagreen accounts for

approximately 0.9TWh in 22/23 and 2.5TWh

in each of 23/24, 24/25 and 25/26 with Viking

accounting for 1.6TWh in 24/25 and 1.9TWh

in 25/26. These volumes represent SSE’s

most up to date view of the output from

Seagreen taking account of recent issues

encountered by the S7000 installation

vessel. In the event that further construction

delays result in a shortfall against wind

hedged volumes, it is expected that the

exposure will continue to be managed

within the wider SSE generation portfolio.

The table excludes additional volumes and

income for BM activity, ROCs, ancillary

services, pre-commissioning, capacity

mechanism and shape variations. It also

excludes volumes and income relating to

Irish wind output, pumped storage and CfDs.

Energy output hedges for both wind and

hydro are progressively established over the

36 months prior to delivery (although the

extent of hedging activity for future periods

depends on the level of available market

depth and liquidity). Target hedge levels

continue to be achieved through the forward

sale of either electricity, or gas and carbon

equivalents (assuming a constant 1MWh :

69.444 th and 1MWh : 0.3815 te/MWh

conversion ratio between commodities),

with the balance determined by the optimal

hedge price across those markets. This

approach aims to reduce the exposure of

renewables assets to volatile spot power

market outcomes whilst still providing an

underlying commodity price hedge.

For wind energy output, SSE’s established

approach to hedging seeks to account for

the effect of the ‘wind capture price’ by

targeting a hedge of less than 100% of its

anticipated wind energy output for the

coming 12 months. The targeted hedge

percentage is reviewed and adjusted as

necessary to reflect any changes in future

market and wind capture insights. The last

such revision occurred in May 2021, with at

least 90% of the anticipated energy output

from wind for the coming twelve months

being hedged from that date.

The approach to hedging hydro energy

output remains unchanged at approximately

85% of its forecast energy output for the

coming 12 months.

UK Business Energy: The business supplies

electricity and gas to business and public

sector customers. Sales to contract

customers are 100% hedged: at point of

sale for fixed contract customers; upon

instruction for flexi contract customers;

and on a rolling hedge basis for tariff

customers.

Given the pricing and macro-economic

context Business Energy is dynamically

monitoring nearer term consumption

actuals for any early signs of demand

variability, and adjusting future volumes

hedged accordingly.

GB Thermal: In the six months prior to

delivery, SSE aims to hedge all of the

expected output of its CCGT assets, having

progressively established this hedge over

the preceding eighteen months. Hedging

activity depends on the availability of

sufficient market depth and liquidity, which

can be limited, particularly for periods

further into the future.

SSE Renewables – GB wind and hydro

Forward power prices and volatility have been increasing, driven by supply-demand

tensions, the acceleration in carbon pricing, nuclear outages and closures and the

reconfiguration of the merit order in both GB and Ireland. These trends have been amplified

by scarcity concerns across Europe. In response to this, SSE Renewables has increased its

hedge position against its target volume for financial years 2023/24 and 2024/25.

In order to show this hedge acceleration, the table below has been updated to show the

position at 18 May 2022 for those periods.

As at 31 March 2022 As at 18 May 2022

2021/22 2022/23 2023/24 2024/25 2025/26

Wind Expected volume – TWh 4.2 5.3 6.8 8.4 8.7

Volume hedged – % 85% 91% 78% 37% 1%

Hedge price – £MWh £48 £54 £69 £105 £108

Hydro Expected volume – TWh 3.6 3.5 3.7 3.8 3.8

Volume hedged – % 83% 85% 70% 38% 1%

Hedge price – £/MWh £50 £63 £74 £110 £108

89SSE plc Annual Report 2022

SSE continues to monitor market

developments, in particular the recent

energy and carbon price volatility, and will

adjust its hedging approach to take account

of any resultant change in exposures.

Gas Storage: The annual auction to offer

gas storage capacity contracts from Atwick,

held in April 2022, resulted in no third-party

contracts being secured. As such the assets

are being commercially operated to

optimise value arising from changes in the

spread between summer and winter prices,

market volatility and plant availability.

Energy Portfolio Management (EPM): EPM

provides the route to market and manages

the execution for all of SSE’s commodity

trading outlined above (spark spread,

power, gas, oil and carbon). This includes

monitoring market conditions and liquidity

and reporting net Group exposures. The

business operates under strict position

limits and VAR controls. There is some

scope for small position-taking to permit

EPM to manage around shape and

liquidity whilst taking small optimisation

opportunities. This is contained within a

VAR limit of £2m (£1m for the curve period

and £1m for the prompt).

Ireland: Vertical integration of the

generation and customer businesses in

Ireland limits the Group’s commodity

exposure in that market.

In addition to the above exceptional items

from continuing operations, a net

exceptional gain within discontinued

operations of £455.7m before tax was

recognised. This net exceptional profit

consisted of:

• a £576.5m gain recognised on

completion of the disposal of the

Group’s 33.3% investment in SGN on

22 March 2022; offset by

• a £120.8m loss relating to the disposal of

the Gas Production assets and liabilities

on 14 October 2021.

For a full description of exceptional items,

see note 7 of the Financial Statements.

Operating derivatives

SSE enters into forward purchase contracts

(for power, gas and other commodities) to

meet the future demands of its energy

supply businesses and to optimise the value

of its generation assets. Some of these

contracts are determined to be derivative

financial instruments under IFRS 9 and as

such are required to be recorded at their

fair value as at the date of the financial

statements.

Summarising movements on exceptional items

And certain remeasurements

Exceptional items

In the year to 31 March 2022, SSE recognised a net exceptional gain within continuing

operations of £305.0m before tax. The following table provides a summary of the key

components making up the net gain position:

Exceptional Credits/(Charges) within continuing operations

Total

£m

Disposals of non-core assets:

Contracting & Rail business – loss on disposal (18.9)

Impairments and other exceptional items

Thermal Electricity Generation historic impairment reversal 331.6

Gas Storage historic impairment reversal 97.3

Neos Networks investment impairment and adjustment to consideration (113.1)

Other historic true-up credits 8.1

323.9

Total exceptional items 305.0

Notes:

The definition of exceptional items can be found in note 3.2 of the Financial Statements.

Non-core assets are defined as being assets in which SSE is not the principal operator or are less aligned with

the transition to net-zero emissions.

Certain remeasurements

In the year to 31 March 2022, SSE recognised a net remeasurement gain within continuing

operations of £2,118.8m before tax. The following table provides a summary of the key

components making up the net gain position:

Certain remeasurements within continuing operations

Total

£m

Operating derivatives 2,100.4

Commodity stocks held at fair value (2.6)

Financing derivatives 21.0

Total 2,118.8

SSE shows the change in the fair value of

these forward contracts separately as this

mark-to-market movement does not reflect

the realised operating performance of the

businesses. The underlying value of these

contracts is recognised as the relevant

commodity is delivered, which for the

large majority of the position at 31 March

2022 is expected to be within the next

12-18 months.

The change in the operating derivative

mark-to-market valuation was a £2,100.4m

increase from a small “in-the-money”

position at 31 March 2021 into a significantly

“in-the-money” position at 31 March 2022.

This movement consisted of:

• Settlement during the year of £(1,426.8)m

of previously “in-the-money” contracts

in line with the contracted delivery

periods; and

• Mark-to-market gains of £3,527.2m on

unsettled contracts entered into during

the course of 2020/21 and 2021/22 in

line with the Group’s stated approach to

hedging. These mark-to-market gains

reflect the significant volatility in

commodity markets during the period.

As in prior years, the reported result does

not include remeasurement of ‘own use’

adverse hedging agreements which would

have settled at a mark-to-market loss in the

year of c.£1.95bn and which would be

valued at c.£(2.1)bn at 31 March 2022; these

contracts are excluded from recognition

under IFRS 9 and largely offset the IFRS 9

remeasurement noted above.

Commodity stocks

held at fair value

Gas inventory purchased by the Gas

Storage business for secondary trading

opportunities is held at fair value with

reference to the forward month market

price. The £(2.6)m negative movement in

the year mainly resulted from a decrease in

the underlying volumes of gas held at year

end, as gas was sold in the second half of

the financial year realising the significant

increase in the fair value of that gas during

the year.

90 SSE plc Annual Report 2022

STRATEGIC REPORT

Financial review continued

Financing derivatives

In addition to the positive movements

above, a positive movement of £21.0m was

recognised on financing derivatives in the

year to 31 March 2022, including SSE’s

share of joint venture financing derivative

remeasurements, and related to mark-to-

market movements on cross-currency

swaps and floating rate swaps that are

classed as hedges under IAS 39. These

hedges ensure that any movement in the

value of net debt is predominately offset by

a movement in the derivative position. The

adjustment was primarily driven by weaker

Sterling against the Dollar partially offset by

stronger Sterling against the Euro.

These remeasurements are presented

separately as they do not represent

underlying business performance in the

period. The result on financing derivatives

will be recognised in adjusted profit before

tax when the derivatives are settled.

Reported profit before tax

and earnings per share

Taking all of the above into account,

reported results for the year to 31 March

2022 are significantly higher than the

previous year. In addition to the £2,118.8m

cumulative net gain on forward commodity,

gas inventory and financing derivative fair

value remeasurements noted above,

reported results also reflect the reversal

of historic SSE Thermal and Gas Storage

impairment charges of £428.9m as well as

other pre-tax exceptional items totalling

£(123.9)m as detailed within note 7 of the

Financial Statements.

Reported results in the prior year reflected

pre-tax exceptional and certain re-

measurement gains of £1,503.7m recognised

which were driven by a combination of

progression with the Group’s £2bn plus

non-core asset disposal programme and

IFRS 9 remeasurements on operating

derivatives.

Financial management and balance sheet

Debt metrics

March

2022

£m

September

2021

£m

March

2021

£m

Net Debt/EBITDA* 4.0 N/A 4.7

Adjusted net debt and hybrid capital (£m) (8,598.2) (9,611.4) (8,898.9)

Average debt maturity (years) 6.8 7.2 7.4

Adjusted interest cover (times) 4.0 1.6 3.5

Average interest rate for the period (excluding JV/assoc. interest and all hybrid coupon payments) 3.29% 3.35% 3.12%

Average cost of debt at period end (including all hybrid coupon payments) 3.81% 3.89% 3.75%

* Note: Net debt represents the group adjusted net debt and hybrid capital. EBITDA represents the full year group adjusted EBITDA, less £125.4m (at March 2022) for

the proportion of adjusted EBITDA from equity-accounted Joint Ventures relating to project financed debt.

Net finance costs reconciliation

March

2022

£m

March

2021

£m

Adjusted net finance costs 372.8 384.6

Add/(less):

Lease interest charges (30.4) (35.3)

Notional interest arising on discounted provisions (5.7) (3.8)

Hybrid equity coupon payment 50.7 46.6

Adjusted finance costs for interest cover calculation 387.4 392.1

SSE Principal Sources of debt funding

March

2022

£m

September

2021

£m

March

2021

£m

Bonds 55% 58% 58%

Hybrid debt and equity securities 21% 22% 24%

European investment bank loans 7% 7% 8%

US private placement 9% 9% 8%

Short-term funding 5% 1% 0%

Index-linked debt 3% 3% 2%

% Of which has been secured at a fixed rate 96% 100% 98%

Rating Agency Rating Criteria Date of Issue

Moody’s Baa1 ‘negative outlook’ ‘Low teens’ Retained Cash Flow/Net Debt November 2021

Standard and Poor’s BBB+ ‘outlook stable’ About 18% Funds From Operations/Net Debt November 2021

91SSE plc Annual Report 2022

Maintaining a strong

balance sheet

While there may be short-term fluctuations,

a key objective of SSE’s approach to

managing cash outflow and securing value

and proceeds from disposals is its target of

a net debt/EBITDA ratio of 4.5x or lower

across the five years to 31 March 2026.

As well as promoting the long-term

success of the Company, this approach is

also designed to ensure that SSE maintains

credit rating ratios (Retained Cash Flow

(RCF)/Net Debt and Funds From Operations

(FFO)/Net Debt) that are comparable with

private sector utilities across Europe and

comfortably above those required for an

investment grade credit rating.

SSE’s S&P credit rating remains at BBB+

‘stable outlook’ and its Moody’s rating also

remains at Baa1, but updated to ‘stable

outlook’ following the strategic review

update in November 2021.

Adjusted net debt

and hybrid capital

SSE’s adjusted net debt and hybrid capital

was £8.6bn at 31 March 2022, down from

£8.9bn at 31 March 2021. This movement

reflects the completion of the non-core

asset disposal programme announced in

2020, which included completion of the

sale of the 33.3% investment in SGN in

March 2022, partially offset by the ongoing

investment programme, including the

acquisition of an 80% stake in a Japanese

development platform from Pacifico

Energy in September 2021, as well as

various working capital movements.

Following the significant debt issued in the

20/21 financial year, where the SSE Group

accessed the debt and hybrid capital

markets three times issuing c.£2.5bn of

debt over six tranches, no new medium-

long-term debt was issued in the 2021/22

financial year. The SSE Group did however

re-enter the short-term Commercial Paper

market during the year and at 31 March

2022 had £507m of Commercial Paper

outstanding.

Debt summary as

at 31 March 2022

As stated above no new medium- long-

term debt was issued and received in

2021/22 however the following two debt

issues were committed to or completed

either side of the financial year end:

• In March 2022, the SSE Group through its

SSEN Transmission entity priced and

committed to a £350m dual tranche

private placement, being a £175m 10-year

tranche at 3.13% and £175m 15-year

tranche at 3.24% giving an all-in average

rate of 3.19%. The pricing was committed

to in March 2022 and the proceeds will be

received on 30 June 2022.

• In April 2022, SSE plc issued a €1bn NC6

equity accounted hybrid bond at 4% to

refinance the dual tranche debt

accounted hybrid bonds issued in March

2017. SSE has taken advantage of the

3-month par call option on these 2017

hybrid bonds, meaning they will now be

repaid on 16 June 2022 in advance of the

first call date. The €1bn equity accounted

hybrid bond has been kept in Euros and

the proceeds will be used to cover the

portion of the maturing hybrid that was

swapped to Euros (€575m) and to finance

a portion of the Southern European

onshore wind development platform

acquisition cost which is expected to

complete by September 2022.

In addition to the hybrid bonds called in

June 2022 a further £613m of medium-

long-term debt matures in 2021/22 being

£163m (USPP) which matured in April 2022,

£300m (Eurobond) maturing in September

2022 and £150m (EIB) maturing in October

2022. A further £507m of short-term debt

in the form of Commercial Paper is also

due to mature in the first half of 2021/22,

however the current intention is to roll this

maturing short-term debt forward where

possible.

Hybrid bonds summary

as at 31 March 2022

Hybrid bonds are a valuable part of SSE’s

capital structure, helping to diversify SSE’s

investor base and most importantly to

support credit rating ratios, with their 50%

equity treatment by the rating agencies

being positive for SSE’s credit metrics.

A summary of SSE’s hybrid bonds as at

31 March 2022 can be found below:

Issued Hybrid Bond Value* All in rate First Call Date Accounting Treatment

March 2017 £300m 3.73% September 2022 Debt accounted

March 2017 $900m (£749m) 2.72% September 2022 Debt accounted

July 2020 £600m 3.74% Apr 2026 Equity accounted

July 2020 €500m (£454m) 3.68% July 2027 Equity accounted

* Sterling equivalents shown reflect the fixed exchange rate where proceeds have been swapped to Sterling and where proceeds remain in Euros the Sterling

equivalent is revalued each period.

In accordance with the first call date, the €600m (£440m) March 2015 Hybrid Bond was called and redeemed in April 2021 and therefore

not included in the table above. The March 2017 hybrids have a 3-month par call option that SSE has invoked meaning these two hybrids

will now be called and settled on 16 June 2022.

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

2022/23 2021/22

HYe FYe HYa FYa

Total equity (cash) accounted £39m £39m £51m £51m

Total debt (accrual) accounted £21m £21m £15m £31m

Total hybrid coupon £60m £60m £66m £82m

92 SSE plc Annual Report 2022

STRATEGIC REPORT

Financial review continued

SSE’s March 2015 and July 2020 hybrid

bonds are perpetual instruments and are

therefore accounted for as part of equity

within the Financial Statements but, as in

previous years, have been included within

SSE’s ‘Adjusted net debt and hybrid capital’

to aid comparability. The March 2017 hybrid

bonds which have been called and will be

settled in 2022/23 had a fixed redemption

date and have therefore been debt

accounted and included within Loans

and Other Borrowings; as such they

were already part of SSE’s adjusted net

debt and hybrid capital.

The coupon payments relating to the equity

accounted hybrid bonds are presented as

distributions to other equity holders and are

reflected within adjusted earnings per share

when paid. The coupon payments on the

debt accounted hybrid bonds are treated

as finance costs under IFRS 9.

Managing net finance costs

SSE’s adjusted net finance costs – including

interest on debt accounted hybrid bonds

but not equity accounted hybrid bonds –

were £372.8m in the year to 31 March 2022,

compared to £384.6m in the previous year

after restatement for SGN related finance

costs. The relatively stable level of finance

costs from year to year, despite periods of

high inflation, reflects the high proportion

of fixed rate debt held by the Group.

Reported net finance costs were £273.2m

compared to £236.9m, after restatement

for SGN related finance costs, reflecting

a £34.6m year-on-year change in the

mark-to-market revaluation of financing

derivatives held at fair value.

Summarising cash and

cash equivalents

At 31 March 2022, SSE’s adjusted net debt

included cash and cash equivalents of

£1.0bn, down from £1.6bn at March 2021

which reflects the continued strong cash

generation from operating activities,

offset by a significant increase in capital

investment, a reduction in year-on-year

disposal proceeds as the June 2020

non-core asset disposal programme

came to an end and a net repayment of

borrowings. This continued strong cash

position will allow SSE to meet its near-

term debt repayment and capital

investment needs as set out above.

As the fair value of forward commodity

contracts has moved from an ‘in the

money’ position in the prior year to an

‘out the money’ position in the current year,

the related collateral required has similarly

unwound. At 31 March 2022, £74.7m of

cash was provided as collateral to third

parties compared to £37.1m held as

collateral from third parties on these

‘in the money’ contracts in the prior year.

Revolving credit facility/

short term funding

SSE has £1.5bn of committed bank facilities

in place to ensure the Group has sufficient

liquidity to allow day-to -day operations

and investment programmes to continue in

the event of disruption to Capital Markets

preventing SSE from issuing new debt for a

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

The facilities can also be utilised to cover

short-term funding requirements; however,

they remain undrawn for most of the time

and at 31 March 2022 they were both

undrawn.

Both facilities are classified as sustainable

facilities with interest rate and fees paid

dependant on SSE’s performance in

environmental, social and governance

matters, as assessed independently by

Vigeo Eiris.

In addition to these committed bank

facilities, the Group has access to £100m

of uncommitted bank lines and a £15m

overdraft facility.

Maintaining a prudent

treasury policy

SSE’s treasury policy is designed to be

prudent and flexible. In line with that, cash

from operations is first used to finance

regulatory and maintenance capital

expenditure and then dividend payments,

with investment and capital expenditure for

growth generally financed by a combination

of cash from operations, bank borrowings

and bond issuance. In 2021/22 growth was

also financed by disposal proceeds.

As a matter of policy, a minimum of 50%

of SSE’s debt is subject to fixed rates of

interest. Within this policy framework, SSE

borrows as required on different interest

bases, with financial instruments being

used to achieve the desired out-turn

interest rate profile. At 31 March 2022, 96%

of SSE’s borrowings were at fixed rates.

Borrowings are mainly in Sterling and

Euros to reflect the underlying currency

denomination of assets and cash flows

within SSE. All other foreign currency

borrowings are swapped back into either

Sterling or Euros.

Transactional foreign exchange risk

arises in respect of procurement contracts,

fuel and carbon purchasing, commodity

hedging and energy portfolio management

operations, and long-term service

agreements for plant.

SSE’s policy is to hedge any material

transactional foreign exchange risks

through the use of forward currency

purchases and/or financial instruments.

Translational foreign exchange risk arises in

respect of overseas investments; hedging

in respect of such exposures is determined

as appropriate to the circumstances on a

case-by-case basis.

Ensuring a strong debt structure

through medium- and long-term

borrowings

The ability to raise funds at competitive

rates is fundamental to investment.

SSE’s fundraising over the past five years,

including senior bonds, hybrid capital and

term loans, now totals £7.7bn and SSE’s

objective is to maintain a reasonable range

of debt maturities. Its average debt maturity,

excluding hybrid securities, at 31 March

2022 was 6.8 years, down from 7.4 years

at 31 March 2021. This movement reflects

the £2.1bn of debt maturing in the next 12

months and is forecast to return to 7.5 years

during 2022/23. SSE’s average cost of debt

is now 3.81%, compared to 3.75% at

31 March 2021.

Going concern

The Directors regularly review the Group’s

funding structure and have assessed that

the Financial Statements should be

prepared on a going concern basis.

In making their assessment the Directors

have considered sensitivities on the

forecast future cashflows of the Group for

the period to 31 December 2023 resulting

from the current volatile market conditions;

the Group’s credit rating; the success of the

Group’s disposal programme through

93SSE plc Annual Report 2022

2020/21 and 2021/22; and the successful

issuance of £1.2bn of hybrid equity and

private placement debt issued since the

March 2022 financial year end. The

Directors have also considered the Group’s

obligations under its debt covenants, with

projections to 31 December 2023

supporting the expectation that there will

be no breaches.

The Directors have also assessed that the

Group remains able to access Capital

Markets, as demonstrated by the £3.7bn of

debt issued over the last 24 months. There

is also an expectation of continued

availability of the Commercial Paper market

along with future available liquidity in the

private placement market in addition to the

Group’s existing liquidity with £1.5bn of

undrawn committed borrowing facilities.

SSE’s principal joint ventures and associates

SSE’s financial results include contributions from equity interests in joint ventures (“JVs”) and associates, all of which are equity

accounted. The details of the most significant of these are included in the table below. This table also highlights SSE’s share of off-

balance sheet debt associated with its equity interests in JVs which totals less than £2.5bn as at 31 March 2022.

SSE principal JVs and associates

Asset type SSE holding

SSE share of external

debt as at 31 March 2022

SSE Shareholder loans

as at 31 March 2022

Seabank Power Ltd 1,234MW CCGT 50% No external debt No loans outstanding

Marchwood Power Ltd 920MW CCGT 50% No external debt £39m

Clyde Windfarm (Scotland) Ltd 522MW onshore wind farm 50.1% No external debt £127m

Dogger Bank A Wind Farm Up to 1,200MW offshore wind farm. 40% £532m Project financed

Dogger Bank B Wind Farm Up to 1,200MW offshore wind farm. 40% £364m Project financed

Dogger Bank C Wind Farm Up to 1,200MW offshore wind farm. 40% £185m Project Financed

Seagreen Windfarm Ltd 1,075MW offshore wind farm 49% £570m £477m

Seagreen 1a Ltd Offshore wind farm extension 50% No external debt £9m

Lenalea Wind Energy Ltd 30MW of onshore windfarm 50% No external debt £3m

Beatrice Offshore Windfarm Ltd 588MW offshore wind farm 40% £736m Project financed

Cloosh Valley Wind Farm 105MW onshore windfarm

(part of Galway Wind Park)

25% £25m Project financed

Neos Networks Ltd Private telecoms network 50% No external debt £91m

Slough Multifuel Ltd 50MW energy-from-waste facility 50% No external debt £63m

Stronelairg Windfarm Ltd 228MW onshore wind farm 50.1% No external debt £88m

Dunmaglass Windfarm Ltd 94MW onshore windfarm 50.1% No external debt £47m

Notes:

1 Greater Gabbard, a 504MW offshore windfarm (SSE share 50%) is proportionally consolidated and is reported as a Joint Operation with no loans outstanding.

2 For accounting purposes, £205m of the £477m of SSE Shareholder loans advanced to Seagreen Windfarm Limited as at 31 March 2022 have been classified as equity.

Taxation

SSE is one of the UK’s biggest taxpayers, and

in the PwC survey published in November

2021 was ranked 16th out of the 100 Group

of Companies in 2021 in terms of taxes

borne (those which represent a cost to the

company, and which are reflected in its

financial results).

SSE considers being a responsible taxpayer a

core element of its social contract with the

societies in which it operates. SSE seeks to

pay the right amount of tax on its profits, in

the right place, at the right time, and was the

first FTSE 100 company to be awarded the

Fair Tax Mark. While SSE has an obligation

to its shareholders, customers and other

stakeholders to efficiently manage its total

tax liability, it does not seek to use the tax

system in a way it does not consider it was

meant to operate, or use tax havens to

reduce its tax liabilities.

Under its social contract SSE has an

obligation to the society in which it

operates, and from which it benefits – for

example, tax receipts are vital for the public

services SSE relies upon. Therefore, SSE’s

tax policy is to operate within both the

letter and spirit of the law at all times.

In December 2021, SSE published ‘Talking

Tax 2021: Tax as a driver for change’ report.

It did this because it believes building trust

with stakeholders on issues relating to tax is

important to the long-term sustainability of

the business.

In the year to 31 March 2022, SSE paid

£335.3m of taxes on profits, property taxes,

environmental taxes, and employment

taxes in the UK, compared with £379.0m in

the previous year. The reduction in total

taxes paid in 2021/22 compared with the

previous year was primarily due to:

• The sale of SSE’s Contracting business in

June 2021. Only three months of profit

taxes, property taxes and employment

taxes are included in relation to that

business in 2021/22 compared with

a full year in 2020/21;

• Lower Climate Change Levy being paid

as a result of outages at SSE’s gas-fired

power stations.

In 2021/22 SSE also paid €46.4m of taxes in

Ireland, compared to €20.4m the previous

year, due to increased profits in SSE’s Irish

businesses. Ireland is the only country

outside the UK in which it currently has

significant trading operations. SSE’s

operations elsewhere are still at an early

stage and are not yet paying material

amounts of tax.

As with other key financial indicators, SSE’s

focus is on adjusted profit before tax and, in

line with that, SSE believes that the adjusted

current tax charge on that profit is the tax

measure that best reflects underlying

performance. SSE’s adjusted current tax

rate, based on adjusted profit before tax,

was 9.2%, compared with 9.1% in 2020/21

on the same basis. Total deferred tax for

the period increased to £797.4m from

£145.4m and was principally driven by the

tax effect on the significant mark-to-

market valuation movement on derivative

contracts, in addition to a £244.7m

adjustment relating to the tax rate change

to 25% which was substantively enacted on

24 May 2021.

94 SSE plc Annual Report 2022

STRATEGIC REPORT

Financial review continued

Pensions

Contributing to employees’ pension schemes – IAS 19

March

2022

September

2021

March

2021

Pension scheme asset recognised in the balance sheet before deferred tax £m 584.9 501.7 543.1

Pension scheme liability recognised in the balance sheet before deferred tax £m – (63.7) (186.1)

Net pension scheme asset recognised in the balance sheet before deferred tax £m 584.9 438.0 357.0

Employer cash contributions Scottish Hydro Electric scheme £m 1.0 0.5 1.1

Employer cash contributions Southern Electric scheme £m 58.0 30.7 55.2

Deficit repair contribution included above £m 40.9 20.4 37.9

In the year to 31 March 2022, the net

surplus across SSE’s two pension schemes

increased by £227.9m, from £357.0m to

£584.9m, primarily due to actuarial gains

of £197.3m and contributions made to the

schemes offset by current service costs.

The valuation of the Southern Electric

Pension Scheme (‘SEPS’) increased by

£253.5m in 2021/22 primarily due to

actuarial gains of £221.9m, in particular

the impact of higher discount rates, and

deficit repair contributions exceeding

service costs.

The Scottish Hydro Electric Pension

Scheme (‘SHEPS’) has insured against

volatility in its deferred and pensioner

members through the purchase of ‘buy-in’

contracts meaning that the Group only

retains exposure to volatility in active

employees. During the year the SHEPS

surplus decreased by £25.6m.

Additional information on employee pension

schemes can be found in note 23 to the

Financial Statements.

95SSE plc Annual Report 2022

SSE’s strategy is delivered through a focused mix of market-based

and economically-regulated energy businesses. SSE’s businesses

are key to enabling a net zero economy, have significant growth

potential and, importantly, fit together. With common skills and

capabilities in the development, building and operation of world-

class, highly technical electricity assets, there are strong synergies

between them. SSE’s business mix is very deliberate, highly

effective, fully focused and well set to prosper on the journey

to net zero and beyond.

The review of the Business Units that follows provides

visibility of performance and future priorities.

Operating review

Business Unit

operating review

96 SSE plc Annual Report 2022

STRATEGIC REPORT

Operating review continued

SSEN

Transmission

“The future for our business

has never been brighter:

National Grid’s Network

Options Assessment has

set out the critical need for

further network development

and the British Energy Security

Strategy calls for faster, more

strategic network build-out

to connect the renewables

needed for net zero.”

Rob McDonald

Managing Director,

SSEN Transmission

SSEN Transmission key performance indicators

March

2022

March

2021

SSEN Transmission

Transmission adjusted and reported operating profit – £m 380.5 220.9

Regulated Asset Value (RAV) – £m 4,155 3,631

Renewable Capacity connected to SSEN Transmission Network – MW 7,790 6,750

Transmission adjusted investment and capital expenditure – £m 614.5 435.2

SSEN Transmission overview

SSEN Transmission owns, operates and

develops the high voltage electricity

transmission system in the North of

Scotland and its islands. Over the duration

of the five-year RIIO-T2 price control, which

began in April 2021, total expenditure by

SSEN Transmission is expected to reach at

least £2.8bn (the Certain View) which would

take Transmission RAV to in excess of £5bn

by the end of RIIO-T2.

In addition to the Certain View expenditure,

under Ofgem’s Uncertainty Mechanisms

changes to the allowed revenue are

permitted during the price control period to

reflect additional investment requirements,

when their need or expected timeframe are

not known at the outset. These Uncertainty

Mechanisms are used to fund further

upgrades to the network during the price

control period, when there is more certainty

around the scope of work required. This

investment plays a pivotal role in providing

critical national infrastructure and to

maintain network reliability for the

communities SSEN Transmission serves

as it delivers a network for net zero.

Operational delivery

SSEN Transmission has made a strong

start in delivering against its regulatory

settlement during the first year of the new

five-year RIIO-T2 price control period.

Building on its strong track record of

consistently delivering over 99.99% network

reliability – and in line with its RIIO-T2 goal

to aim for 100% transmission network

reliability for homes and businesses – in

2021/22, SSEN Transmission achieved the

full reward of £0.7m through the Energy

Not Supplied Incentive. This is the second

consecutive year SSEN Transmission has

achieved the full Energy Not Supplied

Incentive available and the 2021/22 reward

will be reflected in revenue in 2023/24.

In addition to exceptional operational

performance in the year, SSEN Transmission

continues to deliver against its strategic

objective to enable the transition to

a low-carbon economy as it builds a

network for net zero in the North of

Scotland. The RIIO-T2 period is expected

to deliver significant growth in the capacity

of renewables connected to SSEN

Transmission’s network, from under 7GW

at the start of RIIO-T2 to around 14GW

by March 2026. This includes growth of

around 1GW in 2021/22, which brings the

total installed capacity connected to the

North of Scotland transmission network to

around 9GW, of which just under 8GW is

from renewable sources. SSEN Transmission

is well on its way to delivering its RIIO-T2

goal to transport the renewable electricity

that powers 10m homes, which will be met

once the installed capacity of renewables

reaches 10GW.

This forecast growth in renewables will be

enabled by a series of strategic investments

in new and upgraded infrastructure.

Excellent progress continues to be made

on the Shetland HVDC transmission link,

which has now been in construction for

over 18 months and will see Shetland

connected to the GB transmission system

for the first time, enabling the connection

of renewables and supporting Shetland’s

future security of supply. The substation

and convertor station sites at Kergord

(Shetland) and switching station at Noss

Head (Caithness) are taking shape, with all

main building structures now complete.

Cable installation preparatory works have

also progressed well, with all land cable

ducting now in place and the first phase of

subsea boulder clearing successfully

completed. Subsea cable installation works

will follow from 2022/23, alongside the fit

out of substation and convertor station

buildings, with the project on track for

completion and energisation in 2024.

97SSE plc Annual Report 2022

The second phase of the Inveraray to

Crossaig overhead line replacement project

in Argyll, from Port Ann to Crossaig, is also

progressing well, with the replacement

line remaining on track for completion

by summer 2023.

Excellent progress continues on works to

increase incrementally the capacity of the

north east and east coast transmission

network to 275kV then to 400kV, with new

substations at New Deer and Rothienorman

now energised at 275kV, to be subsequently

upgraded to 400kV in 2023. The 400kV

overhead line (OHL) upgrade works

between Peterhead, Rothienorman and

Blackhillock are also well under way and

are due for completion in 2023, with the

overall upgrade of the east coast network

to 400kV remaining on track for

completion in 2026.

At both Alyth and Kinardochy, construction

of new substations, including specialist

voltage control devices, have commenced

with good progress also being made at

Peterhead substation and an upgrade to

Tealing substation.

To support SSEN Transmission’s 1.5°C

science-based targets for emissions

reductions, including its RIIO-T2 goal to

deliver a one third reduction in greenhouse

gas emissions, the business remains at the

forefront of industry efforts to remove

harmful SF6 gases from its infrastructure,

working with its supply chain to develop

and deliver innovative alternatives. This

includes the world’s largest installation of

GE’s g3 gas-insulated substation at New

Deer substation and the world’s first g3

400kV substation at Kintore.

For financial performance commentary

please refer to the Group Financial Review.

Growth opportunities in RIIO-T2

During 2021/22, SSEN Transmission has

made excellent progress progressing plans

for a number of investments over and

above its £2.8bn Certain View. These

additional investments, which are being

taken forward through Ofgem’s

Uncertainty Mechanisms, will be key to

delivering a pathway for net zero.

In March 2022, Ofgem provisionally

approved the Final Needs Case (FNC) for the

first of two planned HVDC links connecting

Peterhead to demand centres in England.

Work on the initial 2GW Peterhead to Drax

link, with a combined investment of around

£2.1bn, will be progressed jointly by SSEN

Transmission and National Grid Electricity

Transmission (NGET). Development and

early construction activity and expenditure

will continue during RIIO-T2, with delivery

and energisation in 2029 (RIIO-T3).

Also in March 2022, SSEN Transmission

submitted its Initial Needs Case (INC) to

Ofgem for the Argyll and Kintyre 275kV

Strategy. At an estimated total investment of

around £400m, this is required to upgrade

the main Argyll transmission network from

132kV, supporting the forecast growth in

renewables in the region.

In April 2022, Ofgem published its

response to SSEN Transmission’s INC

for the replacement and upgrade of the

Fort Augustus to Skye transmission line,

recognising the clear need for the project,

paving the way to progress to the FNC

stage of the regulatory approvals process.

At an estimated total investment of around

£400m, the replacement line is required to

maintain security of supply and to enable

the connection of renewable electricity

generation along its route.

Further expenditure to connect new

renewable generation, rail electrification

and system security is also expected

throughout the RIIO-T2 period and beyond

when the need for this investment

becomes certain. These investments could

see the total installed generation capacity

increase to around 14GW by the end of

RIIO-T2, with up to 13GW of this expected

from renewable sources. Subject to

regulatory approval, combined, these

investments, alongside the Certain View,

could bring the total expenditure across the

RIIO-T2 period to over £4bn, with SSEN

Transmission RAV increasing to between

£6.5bn to £7bn by the end of RIIO-T2.

Growth opportunities

beyond RIIO-T2

In January 2022, Crown Estate Scotland

published the outcome of the ScotWind

leasing round, awarding leases with a

potential capacity of around 25GW,

vastly exceeding the anticipated 10GW of

potential capacity expected to be leased.

In April 2022, the UK Government

published its British Energy Security

Strategy (BESS), which included an

increased offshore wind ambition from

40GW to 50GW by 2030 and a clear

direction for Ofgem to support anticipatory

investment in strategic network projects

ahead of demand, which will be formalised

in a Strategic Policy Statement from BEIS to

Ofgem later this year. Enabling ScotWind’s

ambition and the UK Government’s 50GW

target will require significant transmission

upgrades in both onshore and offshore

transmission infrastructure.

In January 2022, National Grid Electricity

Transmission (NGESO) published its 2022

Networks Options Assessment (NOA).

This provided strong ‘proceed’ signals

recommending several major

reinforcements in the North of Scotland

to meet forecast future energy scenarios,

although these will still require Ofgem

approval. The NOA recommended the

following investments in SSEN

Transmission’s network region:

• Two subsea high-voltage direct current

(HVDC) links from Peterhead to England;

• A second HVDC link from Spittal in

Caithness, connecting to Peterhead; and

• Strategic onshore reinforcements north

of Inverness and between Inverness and

Peterhead.

In addition to the opportunities outlined

above, SSEN Transmission continues to

work with stakeholders in Orkney and the

Western Isles to develop and take forward

proposals to enable mainland transmission

connections. Changes to the structure of

the forthcoming Contracts for Difference

(CfD) auction, with offshore wind now in

a separate pot to remote island wind, may

increase the competitiveness of remote

island wind which, in turn, could support

the investment case for the proposed

transmission links. The outcome of the

next CfD auction is expected in the

summer of 2022.

98 SSE plc Annual Report 2022

STRATEGIC REPORT

Operating review continued

SSEN

Distribution

“We are progressing a

stakeholder-led plan for

RIIO-ED2 that balances

investment in net zero with

the need to keep costs down

for customers. We look

forward to the Ofgem’s final

determinations and hope very

much that they match the

decarbonisation ambitions

set out in the British Energy

Security Strategy.”

Chris Burchell

Managing Director,

SSEN Distribution

SSEN Distribution key performance indicators

March

2022

March

2021

SSEN Distribution

Distribution adjusted and reported operating profit – £m 351.8 275.8

Regulated Asset Value (RAV) – £m 4,054 3,792

Distribution adjusted investment and capital expenditure – £m 364.8 350.8

Electricity Distributed – TWh 37.6 36.1

Customer minutes lost (SHEPD) average per customer 57 57

Customer minutes lost (SEPD) average per customer 42 44

Customer interruptions (SHEPD) per 100 customers 56 64

Customer interruptions (SEPD) per 100 customers 42 48

SSEN Distribution overview

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 3.8m

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 over

75,000km² of extremely diverse terrain.

In December 2021, SSEN Distribution

published its RIIO-ED2 Final Business

Plan for 2023 to 2028. Titled ‘Powering

Communities to Net Zero’ it sets out the

£3.99bn of flexibility and network investment

required to accelerate net zero in a way that

is efficient and affordable.

Operational delivery

SSEN Distribution continues to undertake

a major capital investment programme

across both its networks, delivering

significant improvements for customers

and increasing its Regulated Asset Value.

In the 12 months to 31 March 2022, the

business invested £364.8m, bringing the

total invested since the beginning of the

RIIO-ED1 price control to around £2.3bn.

This is part of a forecast £2.7bn investment

throughout the RIIO-ED1 period,

supporting future earnings through RAV

growth. This includes progressing £41m of

strategic investment approved through the

Green Recovery programme in 2021.

2021/22 investment has included a

multi-million pound upgrade to an essential

section of Hampshire’s infrastructure in

Fareham, completed in January 2022; and

a substantial programme of works to boost

power supplies to homes and businesses on

the Isle of Wight comprising the complete

refurbishment of two 132kV transformers

along with the replacement of two 33kV

circuit breakers. In the North of Scotland,

work commenced on a £9.5m project to

boost the resilience and reliability of the

network around Aultbea and Ullapool, and

a £7m investment programme to enhance

security of supply across Tayside.

Incentive performance remains a revenue

driver and SSEN prioritises improving

reliability of network performance and

supporting a positive customer experience.

Under the RIIO regulatory regime, and

the Interruptions Incentive Scheme (IIS),

SSEN Distribution is incentivised on its

performance against the loss of electricity

supply through the recording of Customer

Interruptions (CI) and Customer Minutes

Lost (CML) which includes both planned

and unplanned supply interruptions. These

incentives will typically be collected two

years after they are earned.

The winter of 2021/22 saw six exceptional

weather incidents which had a major

impact on SSEN Distribution’s network,

causing in excess of 2,600 points of

damage. In total, 10 Met Office Weather

Warnings were in place last winter for both

licence areas.

99SSE plc Annual Report 2022

Whilst SSEN Overall Customer Satisfaction

(CSAT) is broadly in line with last year at 87%,

the incentive reward has been impacted due

to the unprecedented storm season. The

volume of calls presented during the winter

period (October to February) was equivalent

to a normal year’s worth of calls, resulting in

reduced customer satisfaction metrics. As a

result, the overall incentive reward under the

Broad Measure of Customer Satisfaction

reduced in 2021/22 to £2.7m from £4.9m

the previous year. It is expected that

a best ever score from the Stakeholder

Engagement and Customer Vulnerability

(SECV) incentive will be achieved, which

would result in an increased incentive

revenue from £1.6m to £1.9m.

For financial performance commentary

please refer to the Group Financial Review.

Growth opportunities in RIIO-ED2

As a provider of critical national

infrastructure, SSEN Distribution is playing

a vital role in accelerating the transition to

net zero. The business is on track to deliver

its key ED1 outputs and, in October 2021,

became the first DNO to set a 1.5°C-aligned

target accredited by the Science Based

Target initiative.

In April 2022, the UK Government’s British

Energy Security Strategy recognised the

importance of strategic network investment

which is essential to meeting the expected

demand growth in RIIO-ED2 and future

price control periods. DNOs will unlock

billions of pounds in investment in wider

economic benefits for a net zero future.

SSEN Distribution now awaits Ofgem’s draft

determination on its ambitious, stakeholder-

led business plan for the RIIO-ED2 period.

This will be an acid test of the regulator’s

alignment with the British Energy Security

Strategy and fundamentally its approach to

delivering the necessary strategic investment

for networks to be an enabler, rather than

a blocker, of net zero. SSEN Distribution

continues to engage proactively with Ofgem

and government on achieving a fair ED2

outcome that protects current and future

consumers, and delivers the outcomes

customers want at a pace consistent with

a rapid growth environment.

The proposals within SSEN Distribution’s

Final Business Plan for ED2 are a key part of

SSE’s Net Zero Acceleration Programme. The

plan was co-created with stakeholders and

this engagement will continue to ensure that

their ambitions are reflected in the process.

The Final Business Plan proposes a total base

expenditure of £3.99bn representing a 32%

increase over an equivalent timeframe

in RIIO-ED1, and reflecting additional

requirements for customers over the five

years to 2028. The proposed baseline spend

provides a low-regret foundation enabling all

scenarios and optionality, without which

DNOs risk becoming a blocker to customer

demands for EV and heat pump connections

through ED2 and beyond and increasing

costs for future generations.

Late 2021 saw much-awaited publications

and strategies related to heat

decarbonisation. The UK Government

confirmed its ambition to upscale the

installation of heat pumps to at least

600,000 a year by 2028 and to make its

Boiler Upgrade Scheme available for early

adopters, while the Scottish Government

has set a 2030 target for at least 1m homes

to have switched to zero emissions heat. It

is anticipated that there will be over 800,000

heat pumps across SSEN Distribution’s

networks by the end of RIIO-ED2. The

Final Business Plan sets out the required

investment to ready the network for net

zero, consistent with this projection.

The Scottish Government’s January 2022

publication, A Network Fit For The Future:

Draft Vision for Scotland’s Public Electric

Vehicle Charging Network, confirmed its

desire to enable new models of public

electric vehicle chargepoint financing and

delivery, focused on public and private

partnerships, to support and coordinate

investment. In March 2022, the UK

Government’s EV Infrastructure Strategy

set out ambitions for EV chargepoints to

be seamlessly integrated into a smart

energy system with at least 300,000 public

chargepoints installed by 2030. By this

date, the 2021 DFES projects that SSEN

Distribution’s licence areas could support

up to 10.8GW of electric vehicle charging

capacity. SSEN Distribution has set out

investment plans to help provide the

increased capacity needed to enable these

projections and to ready its network to

facilitate 1.3m electric vehicles by 2028.

100 SSE plc Annual Report 2022

STRATEGIC REPORT

Operating review continued

SSE

Renewables

“We are getting on with

delivering the flagship wind

projects that underpin the Net

Zero Acceleration Programme

and broadening our pipeline

horizons with ventures in

exciting new markets. All of

this is made possible thanks

to a fully-funded capex plan

backed by a large, balanced

group of businesses.”

Stephen Wheeler

Managing Director,

SSE Renewables

12 months. Offshore wind speeds returned

to average after low wind speeds in the

first half of the year, resulting in improved

volumes.

As part of SSE Renewables’ continued

investment into its asset management

capabilities, it has just been awarded

certification in the ISO55001 standard

for asset management for its operational

organisation.

For financial performance commentary

please refer to the Group Financial Review.

Construction programme

All three phases of the world’s largest

offshore wind farm at Dogger Bank

(each 1,200MW, SSE share 40%) remain on

track. Onshore works are continuing, and

offshore construction is now under way

with installation of the HVDC export cables

for Dogger Bank A. Dogger Bank C reached

financial close in December 2021, and

in February 2022, SSE Renewables and

Equinor each sold a 10% share in this

third phase to Eni.

On Seagreen 1 (1,075MW, SSE share 49%)

there are currently 21 jackets and turbines

installed on what will be the world’s deepest,

fixed-bottom offshore wind farm once

operational. The offshore substation

platform is successfully installed and

SSE Renewables overview

SSE Renewables comprises the Group’s

existing operational assets and those under

development in onshore wind, offshore

wind, flexible hydro electricity, run-of-river

hydro electricity and pumped storage. Its

operational offshore wind installed capacity

is 487MW with its onshore wind and hydro

electric installed capacity at 1,936MW and

1,459MW respectively.

Operational delivery

SSE Renewables’ hydro assets continue

to play an important role in providing

cost-effective, low-carbon flexibility to

the system, which is providing additional

diversified revenue streams. Hydro assets

performed very strongly across the year,

with availability at an all-time high between

December and March and providing much

needed flexible peak capacity to the market.

In addition, Foyers pumped hydro station

was fully available through periods of very

high demand.

Despite natural wind resources being

below normal yearly averages, a steady

second half of the year – coupled with high

plant performance to maximise production

– led to a year-end position of onshore

wind volumes at 88% of planned volume.

Offshore, Beatrice saw excellent availability

in the second half and Greater Gabbard

saw improved turbine availability over the

SSE Renewables key performance indicators

March

2022

March

2021

SSE Renewables

Renewables adjusted operating profit – £m 568.1 731.8

Renewables reported operating profit – £m 427.8 856.0

Renewables adjusted investment and capital expenditure before

refunds – £m 811.0 294.3

Generation capacity – MW

Onshore wind capacity (GB) – MW 1,285 1,247

Onshore wind capacity (NI) – MW 122 122

Onshore wind capacity (ROI) – MW 567 567

Total onshore wind capacity – MW 1,974 1,936

Offshore wind capacity (GB) – MW 487 487

Conventional hydro capacity (GB) – MW 1,159 1,159

Pumped storage capacity (GB) – MW 300 300

Total renewable generation capacity (inc. pumped storage) – MW 3,920 3,882

Contracted capacity 2,792 2,792

Generation output – GWh

Onshore wind output (GB) – GWh 2,502 2,377

Onshore wind output (NI) – GWh 264 282

Onshore wind output (ROI) – GWh 1,196 1,354

Total onshore wind output – GWh 3,962 4,013

Offshore wind output (GB) – GWh 1,430 1,845

Conventional hydro output (GB) – GWh 3,107 3,476

Pumped storage output (GB) – GWh 227 244

Total renewable generation (inc. pumped storage) – GWh 8,726 9,578

Total renewable generation (also inc. constrained off) – GWh 9,423 10,171

Note 1: Capacity and output based on 100% of wholly owned sites and share of joint ventures

Note 2: Contracted capacity includes sites with a CfD, eligible for ROCs, or contracted under REFIT

Note 3: Onshore wind output excludes 469GWh of constrained off generation in 2021/22 and 592GWh in

2020/21; Offshore wind output excludes 228GWh constrained off generation in 2021/22 and 1GWh

in 2020/21

Note 4: Onshore wind capacity in GB reflects the commissioning of Gordonbush Extension in August 2021

Note 5: Biomass capacity of 15MW and output of 73GWh in 2021/22 and 71GWh 2020/21 is excluded, with the

associated operating profit or loss reported within Distributed Energy

101SSE plc Annual Report 2022

commencing commissioning works. All

onshore cabling works and export cable

installation is progressing as planned. SSE

currently expects first power in July with

commercial operations by mid-April 2023.

In April 2022, an incident occurred on a

sub-contractor S7000 installation vessel

which is contracted to the Seagreen project.

The project team is working closely with

contractors to manage and mitigate project

impacts. Seagreen 1 is eligible to participate

in the UK CfD Allocation Round 4 (AR4). Bids

are due to be submitted by 15 June 2022

with the results of the auction expected by

8 July 2022.

Construction is progressing well on Viking

(443MW) with almost all of the access tracks

completed and 83 of 103 bases excavated.

Work on the DC substation is continuing

with the first two transformers due to be

delivered by June 2022. Turbines will be

installed in early 2023 and completion is

planned for July 2024. Viking is expected to

be amongst the highest-yielding onshore

wind farms in Europe, producing almost

2TWh annually. It is also eligible to enter

AR4.

At Lenalea wind farm (30MW, SSE share

50%) in Ireland, construction is progressing

and is to be commissioned in late 2022/

early 2023.

In July 2021, Beatrice Offshore Wind Farm

Limited, a joint venture owned 40% by

SSE Renewables, agreed divestment of its

Offshore Transmission Owner assets at an

asset value of £437.9m and full asset transfer

took place on 5 August 2021.

Gordonbush Extension (38MW), SSE’s

first merchant onshore wind project, was

fully commissioned and handed over to

operations following its official opening in

August 2021.

In Hydro, investment in works to modify

three key stations, Sloy, Glendoe and

Errochty, has started and will increase the

capability of these stations in providing

essential services to the grid. And in April

2022, a £50m investment to upgrade

Tummel Bridge power station commenced

which will increase the station’s potential

power output from 34MW to 40MW, with a

return to service expected in Autumn 2023.

Growth opportunities – domestic

SSE Renewables’ core markets of the

UK and Ireland still offer considerable

opportunities for growth over the near,

medium and long term.

Near term, onshore wind growth can be

delivered through SSE Renewables’

consented sites at Strathy South (208MW)

and Tangy repower (57MW) in Scotland.

Yellow River (104MW) in Ireland was

provisionally successful in the May 2022

RESS-2 auction in Ireland and will now

progress towards a final investment

decision. Consent applications have been

submitted to the Scottish Government for

Bhlaraidh Extension (in excess of 100MW),

and Achany Extension (in excess of 80MW).

Offshore, near-term growth is expected

to come from the consented Seagreen 1A

(500MW, SSE Renewables share 49%),

which is an extension to the Seagreen 1

offshore wind site. Seagreen 1A is eligible

to participate in AR4. Should a Financial

Investment Decision (FID) be reached,

it could be operational by 2025/26.

In the medium term, out to the end of the

decade, there is a wealth of opportunities.

In addition to the UK’s increased offshore

target of 50GW by 2030, from 40GW noted

above, the British Energy Security Strategy

set out a raft of measures which will see

permitting of offshore wind projects

accelerated. SSE Renewables’ unrivalled

offshore wind pipeline will play a key role

in meeting this new target.

SSE Renewables is working towards a

consent application submission in Q3 2022

for the up to 4.1GW Berwick Bank wind

farm with the aim of securing consent in

2024 and being operational around the end

of the decade.

North Falls wind farm (up to 504MW,

SSE Renewables share 50%), which is an

extension to the Greater Gabbard wind farm

off the east coast of England, continues to

progress with local consultation under way

for a potential grid connection in North

Essex. North Falls could also be operational

by 2030.

SSE Renewables has added its first floating

offshore wind project to its domestic

pipeline with the success in Crown Estate

Scotland’s ScotWind offshore wind seabed

leasing process as part of a consortium

with Marubeni Corporation and CIP

(Copenhagen Infrastructure Partners). The

up to 2.6GW site (SSE Renewables share

40%) in the E1 Zone in the Firth of Forth will

be one of the largest floating wind projects

in the world and aims to start generating by

2030. This will play an important part in

meeting the UK Government’s increased

floating wind target of 5GW by 2035.

SSE Renewables also aims to contribute

additional capacity needed to meet

Ireland’s offshore wind target of 5GW by

2030. Following the introduction by the

Irish Government of the Maritime Area

Planning (MAP) Act in December 2021,

SSE Renewables will now progress Arklow

Bank Wind Park 2 via this new consenting

regime. The revised project will proceed

with an increased capacity of 800MW.

Subject to securing the necessary consents

and if successful in the first Offshore

Renewable Energy Support Scheme

(ORESS) auction, expected at the end of

2022, Arklow Bank Wind Park 2 could be

operational by 2028.

A foreshore licence has been secured

for site investigations for the 1,000MW

Braymore Wind Park project off the

north-east coast and an application has

been submitted for the 1,200MW Celtic Sea

Array off the south-east coast. Celtic Sea

Array and Braymore Wind Park will both

apply for a Marine Area Consent (akin to

a seabed lease) in the Irish Government’s

next phase, expected in 2023.

Onshore, there continues to be positive

progress on SSE Renewables’ consented

Coire Glas pumped hydro storage project

(up to 1,500MW). Coire Glas would double

the current amount of electricity storage

capacity in Great Britain and create energy

storage capacity of 30GWh, equivalent to

powering around 3m homes for up to 24

hours. The British Energy Security Strategy

identified the importance of long duration

storage, and a policy decision in response

to the BEIS call for evidence on possible

policy interventions, such as cap and floor

mechanism to support long duration

storage, is expected imminently. Subject

to the outcome of these policy decisions,

Coire Glas could progress to an FID decision

by 2023/24 with the objective of being

completed before the end of the decade.

102 SSE plc Annual Report 2022

STRATEGIC REPORT

Operating review continued

SSE has ambitions to develop, build and

operate >1 GW of ‘green’ hydrogen in

industrial clusters and co-located with wind

by 2031. As part of this, SSE Renewables

has kickstarted its first electrolysis projects.

Currently in the early stages of development,

the Gordonbush H2 project will use a

portion of the renewable energy from the

100MW-plus Gordonbush onshore wind

farm to produce up to 2,000 tonnes of

green hydrogen each year, contributing to

the new UK 5GW electrolytic hydrogen

target. SSE Renewables is also part of

Galway Hydrogen Hub (GH2), a consortium

proposing to develop an initial flagship

demonstrator project at Galway Harbour,

for the indigenous production and supply

of green hydrogen fuel for public and

private vehicles.

Growth opportunities –

international

SSE Renewables made important progress

in its international expansion plans in April

2022 when it entered into an agreement

with Siemens Gamesa Renewable Energy

for the acquisition of an onshore wind

development platform totalling c.3.9GW

across Spain, France, Italy and Greece for

a consideration of €580m. The portfolio

includes scope for up to 1GW of additional

co-located solar development

opportunities. The move marks SSE

Renewables’ entry into Southern Europe

and creates a wider opportunity to pursue

a balanced range of technologies, eg wind,

solar, hydrogen, and storage. As part of

the transaction, SSE Renewables will take

on a team of around 40 employees with

vast local experience in the sector. The

transaction is likely to complete by the end

of September 2022, subject to receipt of

relevant foreign direct investment and

regulatory approvals.

In September 2021, SSE Renewables

progressed into Japan with the creation

of a new joint ownership company, SSE

Pacifico (80% stake), which includes the

acquisition of an interest in an offshore

development platform for US$208m. The

new company will develop the acquired

10GW gross portfolio, comprising a

number of early development stage

offshore wind projects in Japan. It includes

a mix of fixed bottom and floating sites with

the most advanced projects expected to be

constructed by the end of this decade.

SSE Renewables has submitted an

application to the Polish government for

an Offshore Location License (OLL) for the

allocation of development rights for an

offshore wind farm in the Baltic Sea, which

would be developed in partnership with

Acciona Energia. The process is expected

to run until Q3 2022.

SSE Renewables also continues to work

with Acciona Energia on offshore wind

opportunities in Spain. The Spanish

Government published its draft offshore

wind roadmap in August which set out an

ambition to target up to 3GW by 2030.

In the Netherlands, SSE Renewables has

submitted bids in the 1.4GW Hollandse

Kust (west) offshore wind tender for two

separate sites of 750MW each. Ecological

innovation and energy systems integration

are key assessment criteria.

SSE Renewables has formed a 50/50

strategic partnership with Brookfield for the

bid, who have strong offtaker relationships

in the Netherlands. SSE Renewables has also

recently opened an office in Rotterdam.

SSE Renewables is also assessing other

growth options across selected markets

in Northern Europe and the United States.

Towards the end of the financial year, it

opened an office in Boston and is assessing

participation in upcoming offshore leasing

rounds, for example, in California, which is

expected to take place in Autumn 2022.

SSE Renewables project pipeline

Project Location Technology

Capacity

(MW)

SSE Share

(MW)

Due FID or in Construction

Dogger Bank A GB Offshore wind 1,200 480

Dogger Bank B GB Offshore wind 1,200 480

Dogger Bank C GB Offshore wind 1,200 480

Seagreen 1 GB Offshore wind 1,075 527

Viking GB Onshore wind 443 443

Lenalea ROI Onshore wind 30 15

Consented

Seagreen 1A

GB Offshore wind 500 245

Yellow River ROI Onshore wind 104 104

Tangy GB Onshore wind 57 57

Strathy South GB Onshore wind 208 208

Coire Glas GB Pumped storage Up to 1,500 Up to 1,500

Requiring consent

Berwick Bank

GB Offshore wind Up to 4,100 Up to 4,100

ScotWind E1 Lease GB Offshore wind 2,600 1,040

Arklow Bank 2

ROI Offshore wind 800 800

North Falls GB Offshore wind 504 252

Cloiche GB Onshore wind 155 155

Other – Onshore wind c.200 c.200

Future prospects

Braymore Point ROI Offshore wind 1,000 1,000

Celtic Sea Array ROI Offshore wind 1,200 1,200

Japanese development

projects Japan Offshore wind 10,000 8,000

Other GB GB Onshore wind c.250 c.250

Other NI NI Onshore wind c.50 c.50

Other ROI ROI Onshore wind c.250 c.250

Other GB GB Hydro 75 75

Note 1: Seeking variation to existing consent.

Note 2: Berwick Bank and Marr Bank offshore wind farms were combined into one wind farm in September

2021, known as Berwick Bank Wind Farm.

Note 3: Entering new Irish Marine Area Planning process with revised capacity proposed.

Note 4: Reflects named development areas where some form of development activity is underway and

therefore excludes any future or in-flight auction processes.

Note 5: SSE agreed to acquire 4.9GW Siemens Gamesa Renewable Energy onshore wind and solar platform in

April 2022 with projects excluded above ahead of the acquisition completing. Completion is expected

by end September 2022.

103SSE plc Annual Report 2022

“The past year has shown

the value that SSE Thermal

creates for shareholders while

providing society with the

generation flexibility needed

in the transition to net zero.

I come into the role of MD

already proud of a team that

is delivering for the Group,

and excited about our future

prospects.”

Catherine Raw

Managing Director,

SSE Thermal

SSE Thermal key performance indicators

March

2022

March

2021

SSE Thermal

Thermal adjusted operating profit – £m 306.3 160.5

Thermal reported operating profit – £m 630.1 775.3

Thermal adjusted investment and capital expenditure – £m 129.3 106.5

Generation capacity – MW

Gas- and oil-fired generation capacity (GB) – MW 3,975 3,992

Gas- and oil-fired generation capacity (ROI) – MW 1,292 1,292

Total thermal generation capacity – MW 5,267 5,284

Generation output – GWh

Gas- and oil-fired output (GB) – GWh 11,303 15,324

Gas- and oil-fired output (ROI) – GWh 2,962 2,433

Total thermal generation – GWh 14,265 18,008

Note 1: Capacity is wholly owned and share of joint ventures.

Note 2: Output is based on SSE 100% share of wholly owned sites and 100% share of Marchwood PPAs due to

the contractual arrangement. In September 2021 SSE’s offtake agreement for 100% of output from its

Seabank CCGT JV expired, with output following that date only recognised to the extent of its 50%

equity share.

Note 3: SSE announced the sale of its stake in Ferrybridge and Skelton Grange multifuel assets on 13 October

2020, the output of these is not included above.

Note 4: Decreased gas- and oil-fired capacity relates to closure of 17MW small diesel plant.

SSE Thermal overview

SSE Thermal owns and operates

conventional thermal generation in the

UK and Ireland. These assets play a key

transitional role in the SSE Group and wider

energy system, supporting the Balancing

Mechanism on the journey to net zero.

While providing much-needed system

flexibility to ensure stability and security

of supply in the short term, SSE Thermal is

actively developing options to progressively

decarbonise its fleet.

Operational delivery

SSE Thermal’s combined cycle gas turbine

(CCGT) fleet has played an important role

in the UK, providing flexibility at scale to

support a tight and volatile energy market,

demonstrating the value it delivers within

the SSE Group portfolio, providing balance

when wind resource is scarce, and the

importance of flexible assets in securing

a resilient transition to net zero.

In the GB market, significant periods of

scarcity in the year have led to increased

forward spark spreads allowing value to

be secured by the fleet ahead of delivery.

This has been complemented by the fleet’s

ability to respond to on-the-day market

requirements to balance the system,

through the Balancing Mechanism. In the

Irish market, the system has been tighter

than normal, with lower generation capacity

available. As a result, SSE Thermal’s assets in

Ireland have played an important role in

keeping the lights on.

With the value of the SSE Thermal portfolio

coming from its ability to respond to

market conditions, plant availability has

been managed responsibly to respond

to system balancing needs; an approach

that is likely to become more important as

the volume of renewable capacity on the

system increases. In providing these vital

balancing services, strong operational

performance is therefore less dependent

upon the volume of its output and more

on the availability of the plant at times of

system stress. Reduced plant availability in

the year was predominantly concentrated

in the first six months and was driven by

a number of factors including unplanned

outages to respond to faults and

maintenance requirements, slight overrun

of planned outages and the phasing of

outages towards the first half of the year

to respond to system needs.

SSE’s UK-based CCGT fleet has secured

valuable Capacity Market agreements for

winter 2022/23 and for future years out to

September 2026, demonstrating the role

thermal plant plays in ensuring security of

supply. Agreements have also been secured

for all of SSE Thermal’s fleet in Ireland.

For financial performance commentary

please refer to the Group Financial Review.

104 SSE plc Annual Report 2022

STRATEGIC REPORT

Operating review continued

The following agreements have been awarded through competitive auctions:

SSE Thermal capacity contract awards

Station Asset type Station capacity SSE share Capacity obligation

Medway (GB) CCGT 735MW 100% To September 2023

Keadby (GB) CCGT 755MW 100% To September 2026

Keadby 2 (GB) CCGT 893MW 100% 16-years commencing October 2022

Peterhead (GB) CCGT 1,180MW 100% To September 2026

Seabank (GB) CCGT 1,234MW 50% To September 2026

Marchwood (GB) CCGT 920MW 100% To September 2026

Slough Multifuel Energy from Waste 50MW 50% 15-years commencing October 2024

Great Island (Ire) CCGT 464MW 100% To September 2026

Rhode (Ire) Gas/oil peaker 104MW 100% To September 2026

Tawnaghmore (Ire) Gas/oil peaker 104MW 100% To September 2026

Tarbert (Ire) Oil 620MW 100% To September 2023

Capacity contracts are based on de-rating factors issued by the delivery body for each contract year, therefore will not directly match SSE’s published station capacity.

Capacities stated reflect Transmission Entry Capacity.

Marchwood (SSE equity share 50%) tolling arrangement means SSE receives 100% of economic benefit from capacity contract.

Keadby 1 has capacity obligation in 2022/23 and 2025/26 but none in 2023/24 or 2024/25 contract years.

Keadby 2 16 year obligation comprised of a T-1 and a 15 year contract.

Growth opportunities

Delivering lower-carbon flexibility is a

key pillar of SSE’s Net Zero Acceleration

Programme. Developing more efficient

alternatives to the existing CCGT fleet will

be vital to deliver SSE’s goal to cut carbon

intensity by 80% by 2030 and achieve its

science-based carbon reduction targets,

aligned with a 1.5°C global warming

scenario. SSE Thermal is developing

projects using carbon capture and storage

(CCS) and hydrogen; technologies which

will be critical to society in the transition to

net zero, enabling enhanced renewables

deployment by balancing the system.

In 2021/22 SSE Thermal progressed its

carbon capture power stations, which

it is co-developing with Equinor, through

the planning process. In June 2021, SSE

Thermal submitted a planning application

for Keadby Carbon Capture Power Station

to the UK’s Planning Inspectorate. In March

2022 SSE Thermal submitted a planning

application for Peterhead Carbon Capture

Power Station to Scotland’s Energy

Consents Unit.

In October 2021 the UK Government

announced that the East Coast Cluster –

comprising the Humber and Teesside

regions – and the HyNet Cluster in

north-west England would be Track 1

clusters, or the first clusters supported

to deploy shared CCS infrastructure by

the middle of this decade. The Scottish

cluster was identified as a ‘reserve’ Track 1

cluster and remains in line to progress to

deployment as a Track 2 cluster by the

end of the decade. The UK Government’s

commitment to supporting four clusters by

2030, including two by the middle of this

decade, was galvanised in its CCUS Investor

Roadmap which emphasised that the

technology is a necessity not an option

to deliver net zero emissions by 2050.

Published in April 2022, it also confirmed

its intention to engage with industry on the

‘Track 2’ process this calendar year.

In November 2021, the UK Government

launched the second phase of the Cluster

Sequencing Competition to identify which

projects would be supported to connect to

Track 1 clusters; this process was also open

to projects seeking a connection into the

‘reserve’ Scottish Cluster. SSE Thermal

submitted applications for Keadby Carbon

Capture Power Station, seeking to connect

into the East Coast Cluster, and Peterhead

Carbon Capture Power Station, seeking to

connect into the Scottish Cluster. Successful

projects will secure a Dispatchable Power

Agreement; a revenue support scheme

on which projects will progress into

negotiations is expected from July 2022.

Low-carbon hydrogen will be an important

facet of a net zero economy. The UK

Government’s inaugural hydrogen strategy,

published in August 2021, highlighted the

role it will play in providing flexible energy

for power, heat and transport and the need

for large hydrogen storage facilities. SSE

Thermal is continuing to develop low-

carbon hydrogen projects, alongside

Equinor, including Keadby Hydrogen

Power Station and Aldbrough Hydrogen

Storage and sees significant further growth

opportunities in this space, in line with the

UK’s target to deliver 10GW of low-carbon

hydrogen production by 2030. SSE Thermal

is also involved in Project Cavendish,

an initiative to promote the Isle of Grain

as a location for a low-carbon hydrogen

economy. This could provide the

opportunity to bring low-carbon hydrogen

to SSE’s Medway site.

Commissioning of Keadby 2, SSE Thermal’s

893MW CCGT, started in October 2021 and

full commercial operation is targeted for

1 October 2022. Keadby 2 brings Siemens’

cutting-edge turbine technology to the UK;

this first-of-a-kind turbine will be Europe’s

most efficient CCGT and will displace

older, more carbon intensive plant on the

system. It is capable of being upgraded to

decarbonise the system further, through

hydrogen blending or carbon capture

and storage.

Keadby 2 also provides a testing ground for

SSE Thermal’s new digital strategy to deliver

intelligent asset management, building

on the digital capabilities already used to

manage the SSE Thermal fleet. Using data

and technology, the digital strategy aims

to enhance asset management and

maintenance capabilities.

105SSE plc Annual Report 2022

Gas Storage

Gas Storage key performance indicators

March

2022

March

2021

Gas Storage

Gas Storage adjusted operating (loss)/profit – £m 30.7 (5.7)

Gas Storage reported operating profit/(loss) – £m 125.4 2.8

Gas storage adjusted investment and capital expenditure – £m 2.1 1.9

Gas Storage overview

SSE Thermal holds around 40% of the UK’s

conventional underground gas storage

capacity. These assets can play an

important role in the transition to net zero,

supporting stability and security of gas

supply in the short term as well as potential

conversion to hydrogen storage for a net

zero future.

Operational delivery

In 2021/22 SSE’s Gas Storage business has

navigated highly volatile gas markets and

optimised assets to help ensure security of

gas supply for the UK and provide important

liquidity to the market. The assets also offer

a significant risk management value to the

portfolio by offering spot, short-notice

flexibility. This helps defend the portfolio

from exposures emanating from wind

speed or consumer demand variability.

Given the increasing focus around gas

supply response across Europe, and the

need for additional reserve to protect

markets against significant geopolitical

exposures, SSE anticipates this trend will

continue. On that basis Gas Storage assets

are likely to make a substantial contribution

to the Group in the next financial year.

For financial performance commentary

please refer to the Group Financial Review.

Growth opportunities

SSE Thermal remains committed to working

with UK Government departments and

Ofgem to ensure the critical role of UK

storage in relation to security of supply and

stability of gas price is properly valued. It is

also looking to play a future role as a source

of low-carbon hydrogen storage which will

be needed to balance supply and demand

in a hydrogen economy.

Plans to develop a potentially world-leading

hydrogen storage project at Aldbrough,

announced in July 2021 with Equinor, are

progressing. Since this announcement, the

UK Government has committed to develop

business models for hydrogen storage as

part of the British Energy Security Strategy

and SSE is particularly close to this policy

discussion.

106 SSE plc Annual Report 2022

STRATEGIC REPORT

Operating review continued

“We recognise that market

volatility has created

challenges for many people.

Our customer businesses

have worked with energy

users across GB and Ireland

to provide support through

a variety of payment options

and additional support

mechanisms.”

Nikki Flanders

Managing Director,

Energy Customer Solutions

SSE Business Energy

SSE Business Energy key performance indicators

March

2022

March

2021

SSE Business Energy

Business Energy adjusted operating (loss)/profit – £m (21.5) (24.0)

Business Energy reported operating profit/(loss) – £m (21.5) (3.9)

Electricity Sold – GWh 12,645 13,070

Gas Sold – mtherms 218 245

Aged Debt (60 days past due) – £m 79.3 73.8

Bad debt expense – £m 18.5 37.8

Exceptional bad debt (credit)/expense – £m – (20.1)

Energy customers’ accounts – m 0.47 0.48

SSE Business Energy overview

Business Energy GB retains a solid book and

customer base and amongst non-domestic

suppliers is ranked for power 4th by meters

(market share 11.6%) and 4th by volume

(market share 7%); and for gas is ranked 7th

by meters (market share 6.5%) and 9th by

volume (market share 2.3%). The business

markets its products under the SSE Energy

Solutions brand alongside SSE Distributed

Energy, selling power to over 469,000

non-domestic customers across GB.

Operational delivery

During 2021, Business Energy increased its

green customer propositions including the

launch of a new and simplified Corporate

Power Purchase Agreement product, to

make them increasingly accessible to a

wider range of businesses. This was

followed in July by a commitment to

businesses on fixed power contracts that

they will receive their electricity from

renewable sources. Green credentials

associated with this electricity supply are

independently verified by EcoAct, an Atos

company, and customers are provided with

Renewable Energy Guarantees of Origin

(REGOs) certification. Business Energy’s

‘Green Gas plus’ tariff, a renewable gas tariff

which is also independently certified by

EcoAct, performed well through the year

since its launch.

Smart meters are a key factor in supporting

customers on their net zero journey and

2021/22 saw strong performance for the

rollout of smart meter installations. Business

Energy continues to work towards its first

year of challenging smart regulatory

installation targets in calendar year 2022.

For detailed financial performance

commentary please refer to the Group

Financial Review.

Growth opportunities

The platform SSE Business Energy growth

is via the SSE Energy Solutions business-to-

business brand, launched in July 2021 in

partnership with SSE Distributed Energy.

The platform provides a single shopfront

for a range of SSE customer product

offerings to support all business segments

on their net zero journey; from renewable

power and flexible Corporate Power

Purchase Agreement offerings, to customer

workplace EV charging solutions and larger

scale distributed energy systems. As SSE’s

electricity generation businesses continue

to expand and deliver new technologies, so

will SSE Energy Solutions as an important

route to market for the Group.

107SSE plc Annual Report 2022

SSE Airtricity

SSE Airtricity key performance indicators

March

2022

March

2021

SSE Airtricity

Airtricity adjusted operating profit – £m 60.4 44.0

Airtricity reported operating profit – £m 60.4 50.0

Aged Debt (60 days past due) – £m 7.3 7.9

Bad debt expense – £m 4.6 6.9

Exceptional bad debt (credit)/expense – £m – (6.0)

Airtricity Electricity Sold – GWh 5,219 7,595

Airtricity Gas Sold – mtherms 177 219

All Ireland energy market customers (Ire) – m 0.70 0.68

SSE Airtricity overview

SSE Airtricity provides a valuable route

to market for SSE’s low-carbon energy

solutions and green products to customers

across the island of Ireland. Airtricity retains

a strong market position as Ireland’s largest

supplier of 100% green energy, supplying

approximately 701,000 customers and

holding 21.2% market share by load.

Operational delivery

As a responsible business, SSE Airtricity

has recognised that current market

volatility has created challenges for

many households and has taken various

measures to support financially vulnerable

customers. An all-island customer support

fund (€1m) has been established, €1m was

donated to a trusted all-island charity

partner, and a home energy efficiency

upgrade programme has been rolled our

for up to 600 homes in fuel poverty. In

addition Airtricity’s financially vulnerable

domestic customers in the Republic of

Ireland will be insulated from any further

price rises for the remainder of the 2022

calendar year.

For financial performance commentary

please refer to the Group Financial Review.

Growth opportunities

A positive public policy environment aimed

at improving the thermal efficiency of 0.5m

buildings provides the backdrop for the

Generation Green Home Upgrade product.

This is enabling the rapid rollout of a first of

its kind one-stop-shop business model, in

partnership with An Post, in the Republic of

Ireland market. The growth of this business

segment remains a key priority for 2022.

Further areas of strategic focus include

building on the success of partnerships

with brands such as Volkswagen and

ePower delivering electric vehicle charging

infrastructure and green end-to-end

solutions for customers; and continued

innovation and delivery of extended

customer offerings to help support

decarbonisation.

108 SSE plc Annual Report 2022

STRATEGIC REPORT

Operating review continued

“This is an exciting time for the

business. We’ve got ambitions

to deliver solar and battery

storage technology at GW

scale, we have a 2GW

distributed energy

development pipeline,

and we are developing

strategic grid-connected

local energy systems to

industrial regeneration

areas across the UK.”

Neil Kirkby

Managing Director,

SSE Enterprise

SSE Distributed Energy

SSE Distributed Energy key performance indicators

March

2022

March

2021

SSE Distributed Energy

SSE Distributed Energy adjusted operating (loss)/profit – £m (10.9) (27.0)

SSE Distributed Energy reported operating profit/(loss) – £m (29.2) (76.1)

SSE Heat Network Customer Accounts 11,291 10,482

Biomass, heat network and other capacity – MW 33 34

Biomass, heat network and other output – GWh 104 108

SSE Distributed Energy overview

SSE’s reporting of its Enterprise segment

has been updated following the sale of its

Contracting and Rail businesses. The primary

retained activity of the former SSE Enterprise

businesses is now distributed energy. The

business provides solar and battery storage

asset development and operation and

focuses on distributed generation, EV

infrastructure, heat and cooling networks,

and smart buildings and places.

The financial results from the Group’s

out of areas networks business and Neos

Networks Limited (formerly SSE Telecoms)

joint venture are now reported within SSEN

Distribution and Corporate Unallocated

respectively. Comparative information has

been re-stated to reflect these changes.

Operational delivery

Over the past 12 months SSE has

announced significant milestones in its

nascent solar and battery storage business

including a secured 380MW solar and

battery pipeline, with over 1GW more of

other sites currently under assessment.

The secured pipeline includes a 50MW

battery storage asset on a consented site in

Wiltshire, where construction gets under

way this summer, with full energisation

expected in summer 2023. SSE has also

acquired a 30MW solar farm at Littleton

Pastures in Worcestershire and, once

complete in late 2023, this 77-acre site will

be capable of powering some 9,400 homes.

Growth opportunities

A key focus will be on battery storage and

solar technology. Existing grid connections

at legacy coal-fired sites, such as Ferrybridge

and Fiddlers Ferry, also puts SSE in a strong

position to deploy battery storage at scale

and pace.

SSE’s Distributed Energy team is helping

people and places reach their net zero

targets by adopting a ‘whole system’

approach to connect localised and flexible

energy assets. These include energy

optimisation, heat and cooling networks,

electrical networks, smart buildings, and

EV charging. Distributed Energy therefore

seeks to help provide the platform for a

data-driven and sustainable world.

Distributed Energy has ambitions to build a

network of EV charging hubs across the UK

– with the first of potentially 300 hubs being

built in summer 2022 in Glasgow. Innovation

also remains a key tool to unlocking net

zero; its heat sector division for example,

has an exciting partnership under way with

National Grid to utilise heat from electricity

transformers that would otherwise go

to waste.

109SSE plc Annual Report 2022

“EPM has had a critical role to

play in helping SSE navigate

market volatility in 2021/22.

We have strengthened our

offering as a market adviser

and asset optimiser for the

Group thanks to investment in

new forecasting technologies

and the capability of our risk,

analytics and trading teams.”

Gordon Bell

Interim Managing Director,

Energy Portfolio Management

Energy Portfolio Management (EPM)

EPM key performance indicators

March

2022

March

2021

EPM

EPM adjusted operating profit/(loss) – £m (16.8) 18.4

EPM reported operating profit/(loss) – £m 2,083.6 608.5

EPM overview

Energy Portfolio Management (EPM) is the

energy markets heart of the SSE Group,

securing value 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 liquidity

characteristics, which impacts the quantum

of hedging possible. See also SSE’s Hedging

Position.

Operational delivery

In 2021/22 EPM navigated unprecedented

energy market volatility, ensuring the SSE

portfolio was hedged in accordance with

the Group’s approach to hedging and

optimised through prompt periods. The

value EPM secures for SSE’s asset portfolio

continues to be reported against individual

Business Units. 2021/22 also saw successful

delivery of the first year of operation under

the UK Emissions Trading Scheme.

For detailed financial performance

commentary please refer to the Group

Financial Review.

Growth opportunities

Transformation of the EPM Business Unit

continues with key external recruits into

risk, prompt trading and analytics. Trading

has started in France, Belgium and the

Netherlands as the business looks to

expand into Europe.

Investment in SGN

(Scotia Gas Networks – discontinued operation)

SGN key performance indicators

March

2022

March

2021

SGN (Discontinued Operation)

SSE’s 33.3% share – Disposed on 22 March 2022

SGN adjusted operating profit/(loss) – £m 21.0 173.0

SGN reported operating profit/(loss) – £m 495.4 88.6

SGN overview

As part of its strategic refocusing of

the Group, SSE’s entire 33.3% financial

investment stake in gas distribution

operator SGN (Scotia Gas Networks

Limited) was sold to a consortium

comprising existing SGN shareholder

Ontario Teachers’ Pension Plan Board

and Brookfield Super-Core Infrastructure

Partners on 22 March 2022.

Whilst the business had been a good

long-term financial investment for SSE

since 2005, SSE’s focus is now on low-

carbon electricity businesses and the

role they have in transition to net zero.

This disposal marked the completion of

SSE’s £2bn plus disposals programme

announced in June 2020, with a headline

consideration amounting to over £2.8bn

exceeding that original target.

The adjusted operating profit for the

business of £21.0m is retained by the

Group for the period to 11 June 2021

when the investment was designated

as ‘held for sale’ and equity accounting

ceased. On disposal, the Group recorded

an exceptional gain on disposal of £576.5m.

110 SSE plc Annual Report 2022

STRATEGIC REPORT

Section 172 and non-financial information statements

Section 172 Statement

SSE has an unwritten social contract with

its stakeholders that both informs decision

making by the Board and aligns closely with

the spirit of Section 172 of the Companies

Act 2006 (Section 172). Under this contract,

SSE relies on society for public services

and infrastructure, human capital, and the

implicit right to earn a profit and remunerate

shareholders. In return it safely and reliably

provides energy, invests in critical national

infrastructure needed for net zero, creates

jobs and contributes to GDP through fair

payment of tax.

This Statement summarises how, over the

course of 2021/22, the Board has upheld

this contract by promoting the long-term

success of the Company for the benefit of

SSE’s six key stakeholder groups (see pages

32 to 39 ). This has been undertaken with

regard to the matters set out in Section

172(1)(a) to (f), being:

(a) The likely consequences of any decision

in the long term.

(b) The interests of the Company’s

employees.

business relationships with suppliers,

customers and others.

(d) The impact of the Company’s operations

on the community and the environment.

(e) The desirability of the Company

maintaining a reputation for high

standards of business conduct.

(f) The need to act fairly between members

of the Company.

SSE’s approach to the above social contract

is exemplified throughout this Annual

Report, with specific disclosures of decisions

and actions which are supportive of this

Section 172 Statement detailed as follows.

Long-term direction

SSE’s strategy is to create value for

shareholders and society in a sustainable

way by developing, building, operating and

investing in the electricity infrastructure and

businesses needed in the transition to net

zero. Four 2030 Goals support this strategy,

and provide important interim milestones to

net zero in 2050. This longer-term view set

by the Board frames its strategy work and

the agreement of objectives, which extends

to: capex plans; budgets; dividend plans

and future resourcing requirements. SSE’s

Risk Management Framework, including the

Groups’ Principal Risks, the identification

of emerging risks and the Group’s Risk

Appetite statement, further underpins the

Board’s long-term approach.

More on culture and conduct

• Pages 140 to 141  Focusing on culture.

How the Board promotes high standards

of conduct and monitors culture.

• Pages 58 to 68  SSE’s social

contribution. Delivery of wider benefit

through responsible business practices.

111SSE plc Annual Report 2022

Non-Financial Information Statement

SSE has reported extensively on its non-financial impacts within its Annual Report for a number of years and welcomes continued

increasing focus from regulators, shareholders and other stakeholders. This table outlines how SSE meets the Non-Financial Reporting

requirements contained within the Companies Act 2006. Further disclosure can also be found in SSE’s Sustainability Report 2022 .

Reporting requirement and

SSE’s material areas of impact

Relevant Group Principal

Risks, pages 71 to 81

Relevant Group Policies

on sse.com

Policy embedding, due diligence,

outcomes and key performance indicators

Environmental matters

• Delivering net zero

• Managing climate-related

issues

• Carbon performance,

metrics and targets

• Responsible resource use

– water and energy use,

air emissions

Climate Change

Safety and the Environment

Group Climate Change Policy

Group Environment Policy

Our business goals for 2030,

pages 18 to 19 

Our strategy in action,

pages 22 to 28 

Protecting the environment,

pages 42 to 57 

Safety, Sustainability, Health

and Environment Advisory

Committee Report,

pages 164 to 167 

Employees

• Health and safety

• Training and learning

• Culture and ethics

• Reward and benefits

• Employee voice

• Inclusion and diversity

• Support during the

coronavirus crisis

People and Culture

Safety and the Environment

Group Employment Policy

Group Safety and

Health Policy

Our business goals for 2030,

pages 18 to 19 

SSE’s social contribution,

pages 58 to 57 

Focusing on culture,

pages 62 and 140 to 141 

Supporting and listening

to the employee voice,

pages 61 and 137 to 139 

Safety, Sustainability, Health

and Environment Advisory

Committee Report,

pages 164 to 167 

Social matters

• A just transition to net zero

• Contributing to the

economy and supporting

local supply chains

• Sustainable procurement

• Responsible approach

to tax

• Supporting vulnerable

customers

• Energy affordability

• Sharing value with

communities

• Support during the

coronavirus crisis

People and Culture

Speed of Change

Energy Affordability

Group Sustainability Policy

Group Taxation Policy

Group Procurement Policy

Our business goals for 2030,

pages 18 to 19 

SSE’s social contribution,

pages 58 to 57 

Human rights,

anti-corruption

and anti-bribery

• Reinforcing an ethical

business culture

• Speaking up against

wrongdoing

• Prevention of bribery

and corruption

• Approach to human rights

and modern slavery

People and Culture

Large Capital Projects Quality

Group Human Rights Policy

Group Corruption and

Financial Crime Prevention

Policy

Group Whistleblowing Policy

SSE’s social contribution,

pages 58 to 59 

Focusing on culture,

62 and 140 to 141 

112 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Directors’

Report

Good governance and a strong corporate culture are

the foundations of SSE’s purpose, vision and strategy.

The Board gives close consideration to the views of all

stakeholders in its decision making and understands the

importance of clear disclosure of this, and other material

issues, in reporting how its work supports the long-term

success of the Company.

Chair’s introduction 114

Governance at a glance 116

Board of Directors 118

Group Executive Committee 123

Board leadership and company purpose 124

Division of responsibilities 142

Composition, succession and evaluation 143

Nomination Committee Report 145

Audit, risk and internal control 152

Audit Committee Report 152

Energy Markets Risk Committee Report 162

Safety, Sustainability, Health and

Environment Advisory Committee Report 164

Remuneration 168

Remuneration Committee Chair’s statement 168

Directors’ Remuneration Policy 172

Remuneration at a glance 182

Annual report on remuneration 184

Other statutory information 200

Statement of Directors’ responsibilities

in respect of the annual report and

the financial statements 203

113SSE plc Annual Report 2022

Reporting against

the UK Corporate

Governance Code

Board leadership and

company purpose

pages 124 to 141 

Division of responsibilities

page 142 

Composition, succession

and evaluation

pages 143 to 151 

Audit, risk and internal

control

pages 152 to 167 

Remuneration

pages 168 to 199 

114 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Chair’s introduction

Leading

with

purpose

The Board’s work this year has been defined by dramatic

changes in the operating context which informs our

deliberations. As set out in my earlier reflections, this

has included the evolution of a global pandemic which

has touched us all; a sharpened focus on the climate

emergency and the net zero transition; and volatility

and affordability concerns in energy markets impacted

by geopolitical events.

The purpose of this Directors’ Report is to

explain how we as a Board have assessed

SSE’s situation, and taken informed decisions

to secure a sustainable and leading position

on behalf of our key stakeholders; all

underpinned by a long-standing and deeply

embedded commitment to high standards

of corporate governance. The strength of

the Board’s leadership is assessed through

the clarity of the actions we take and

transparency surrounding the standards,

processes and culture we ultimately set.

Focused on the future

In November 2021, SSE announced its Net

Zero Acceleration Programme, representing

the optimum growth pathway identified by

the Board to capitalise on the opportunities

across the value chain in which SSE

participates. In all our deliberations, we are

focused on long-term success, financial

resilience and shareholder value, and

ensure thorough debate based on robust

inputs which capture all of the available

information. We have carefully assimilated

the views and long-term priorities of those

who invest in SSE, and have provided clarity

around funding, growth, and dividend

policy. Across pages 126 to 129 ,

we provide insight into the strategic

process followed in the year, alongside

the governance which drove challenge

and debate across each stage.

In support of strategic progress, we

have continued to monitor and review

current large capital programmes, and

have strengthened development pipelines

which represent the foundation of our

accelerated investment plans. To ensure

the Company has the platform it needs

to succeed in the delivery of revised and

accelerated ambitions, we have also spent

time assessing SSE’s capacity and resources

for future growth.

To this end, we have refreshed the

framework represented by our 2030 Goals,

and (as supported by shareholders at our

2021 AGM) published a Net Zero Transition

Plan, which together set the parameters

within which we intend to deliver our

ambition. This includes enhanced 1.5

aligned science-based targets.

Committee support has been strong

and provided in multiple ways. The

Remuneration Committee has overseen

proposed updates to Remuneration Policy

to align with our growth ambitions. The

Nomination Committee has championed

talent and capability across our most

important asset, people. The Audit

Committee has monitored the development

of our risk and opportunity reporting under

the Taskforce on Climate-related Financial

Disclosures framework. As indicated last

year, the Safety, Sustainability, Health and

Environment Advisory Committee has

progressed its environmental, social and

governance (ESG) role, deepening its focus

on performance across ESG indices, and

reviewing climate resilience and adaptation

plans. The Energy Markets Risk Committee

has been active in its review of SSE’s

exposures in an increasingly volatile energy

market. Further information can be found in

each of the respective Committee Reports

on pages 145 to 199 .

115SSE plc Annual Report 2022

“ The strength of the Board’s leadership is assessed

through the clarity of the actions we take and

transparency surrounding the standards, processes

and culture we ultimately set.”

Engaging and reconnecting

One year on from my last report, a

welcome change has been the ability

to reconnect in person. Throughout the

pandemic virtual channels worked well,

and continue to be used in the Company,

as we responded to employee feedback

on the benefits of our ‘Flexible First’

approach to work enabled by technology.

Nonetheless, having joined at a time when

face-to-face meetings were not possible,

I have thoroughly enjoyed travelling

across SSE and engaging with people and

operations; a sentiment which is echoed by

my fellow Board members.

Site visits deliver an enriched view of the

reports we receive on employee sentiment,

with candid discussion providing a truer

understanding of how to support our

people. This two-way dialogue is further

enhanced through our Non-Executive

Director for Employee Engagement, Dame

Sue Bruce, who reports back to the Board

and management after each engagement

she undertakes. I am pleased to provide

information on pages 137 to 139  of how

we have listened and acted upon the areas

of importance to employees, which takes

place within the maturing framework in

which we discuss, monitor and review

company culture.

We have resumed physical meetings for

the Board in 2021/22, as well as for many

of our shareholder engagements. The 2022

AGM is set to take place in a hybrid format,

and I look forward to meeting with those of

you who are able to attend in person and

answering questions from those of you

who join us virtually.

The Board takes very seriously the views

of employees, shareholders and wider

stakeholders to ensure we are pursuing

actions that are acceptable to those we work

with, and for. And as is evidenced across this

Annual Report, the network in which we

gather relevant insights is extensive. At

Board-level, we enhance our understanding

of views through work which complements

the daily contact our businesses have, with

the most significant external engagement in

the year, in which the Directors participated,

being COP26 in Glasgow.

The Board agenda further includes a

stakeholder assessment of our strategy,

an annual update on supply chains,

confirmation of sustainability priorities and

an annual report of key stakeholder work.

Specifically, in 2021/22, we considered the

development of SSEN Distribution’s ED2

business plan, the impact of storms across

communities, and the wider issue of energy

affordability, to name just a few examples.

Composition and performance

In what has been my first full year as

Chair, we’ve welcomed two new non-

Executive Directors to the Board in Dame

Elish Angiolini and Debbie Crosbie, who

bring added depth and capability to our

perspectives and skillset. This has been

followed by the appointment of John

Bason from 1 June 2022, as the intended

successor to the role of Audit Committee

Chair. John’s financial expertise and wealth

of international experience is a strong fit,

and I look forward to welcoming him to

the Board.

To ensure an orderly transition within the

positions of Remuneration Committee

Chair and Non-Executive Director for

Employee Engagement, we have further

agreed a six month extension to Dame Sue

Bruce’s tenure ending 31 March 2023. At

this time, Melanie Smith will take on the

position of Remuneration Committee Chair

and Dame Elish Angiolini Non-Executive

Director for Employee Engagement.

As discussed on pages 146 to 149 ,

these changes stem from the detailed

assessment by the Nomination Committee

of the Board’s needs, and our composition

will continue to evolve in light of the

fast-moving operating environment and

our future-oriented focus.

A balanced Board comprises representation

across a suite of diverse characteristics,

which is the focus of our standalone Board

Diversity Policy. We took time to consider

the policy in the year and approved updates

to align with our ultimate aim of enduring

inclusivity and equality. Whilst good

progress has been made within the Board

– with gender parity across our current

membership – we recognise there is

always more work to do. Notably, within

the senior leadership population progress

has been slower, and we have therefore

continued to probe the barriers to

accelerating change. We seek to address

sector specific challenges through a new

set of ambitions and accompanying

workstreams for senior leadership, and

within SSE’s Just Transition Strategy. Fuller

detail of the above, and wider people

matters, is set out in the Nomination

Committee Report on pages 145 to 151 .

This year, in line with the three-yearly

cycle, our annual Board evaluation

process was externally-facilitated; providing

objective findings and areas for continued

development and future focus. Both the

appointment of Lintstock as evaluator,

and the methodology used to assess

performance were carefully planned

to ensure meaningful outcomes. We

were pleased with the conclusion that

we continue to operate effectively

and welcome the suggested areas for

improvement, which we will take forward

as actions within our plan of work as set

out on pages 143 to 144 .

I hope the following report of Board

activity is a clear and engaging account

of the year, and look forward to reporting

further progress in 2022/23, when we

will welcome continued engagement

surrounding our views and actions to

secure long-term success.

Sir John Manzoni

Chair, SSE plc

24 May 2022

116 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

6 (50%)

(36%)

(30%)

6 (50%)

(64%)

(70%)

31 March

2022

31 March

2021

31 March

2020

33.0

37. 1

29.9

28.5

31 March

2022

31 March

2021

31 March

2020

Target

to 2022

Governance at a glance

UK Corporate

Governance

Code

The Board continues

to be guided in its

approach to corporate

governance through

application of the FRC’s

UK Corporate Governance

Code 2018 (the Code),

a copy of which can be

found at www.frc.org.uk.

To allow shareholders

to evaluate how the

Code’s Principles have

been applied, the

Directors’ Report has

been structured around

the Code’s respective

sections, with cross

references used where

supporting information

is located in other parts

of the Annual Report.

For the year ended

31 March 2022, the

Board reports compliance

against the Code

Provisions for the duration

of the period and upholds

the spirit of the Code

throughout its work and

that of its Committees.

Rolling three-year female representation

(%)

Board gender balance

Male Female

Board ethnicity

White British: 11 Māori: 1

Board composition dashboard as at 31 March 2022

Reconnecting with our people

Reintroducing physical meetings to enhance

virtual engagement approach.

see pages 137 to 139 

Board-employee engagements

Progressing inclusion and diversity

Approving a new Board Inclusion and Diversity

Policy and maintaining focus on ambitions.

see pages 150 to 151 

Board female representation

50%

Resetting strategic ambition

Developing and approving SSE’s Net Zero

Acceleration Programme for all stakeholders.

see pages 126 to 129 

Agreed capital investment

£12.5bn

Ensuring strong succession

Enhancing Board composition through new

non-Executive Director appointments.

see pages 146 to 147 

Average non-Executive Director tenure

3.8 years

Assessing Board performance

Conducting an external evaluation to drive

continuous improvement.

see pages 143 to 144 

External evaluation spanning

3 months

Realigning remuneration policy

Engaging with shareholders and investor bodies

on the correct remuneration approach.

see pages 136 and 168 to 171 

Related meetings to date

Highlights from 2021/22

117SSE plc Annual Report 2022

0 2 3 5 7 91 4 6 8

Years

Dame Angela Strank

Melanie Smith

Helen Mahy

Peter Lynas

Tony Cocker

Dame Sue Bruce

Dame Elish Angiolini

Debbie Crosbie

Sir John Manzoni

Skills matrix

Non-Executive Director experience

The below matrix captures the skills required to drive SSE’s long-term success and support its vision of being a leading energy company

in a net zero world. An essential element in addition to skills, is the innate difference in approach and thinking styles, which results from

the varied backgrounds and experiences of the non-Executive Directors. This is covered more fully in the individual biographies across

pages 118 to 122 . The below matrix therefore only represents one element of Board contribution, and is based on the depth of practical

expertise which the non-Executive Directors have assimilated outside of their SSE Board role.

Chair and non-Executive Director tenureBoard independence

Executive Directors: 3

Independent non-Executive Directors: 8

Non-Executive Chair: 1

Non-Executive Director tenure

Chair tenure

Sir

John

Manzoni

Dame

Elish

Angiolini

Dame

Sue

Bruce

Tony

Cocker

Debbie

Crosbie

Peter

Lynas

Helen

Mahy

Melanie

Smith

Dame

Angela

Strank

Number of

non-Executives

(/9)

Tenure (years) 1 <1 8 4 <1 7 6 3 2

Experience of operating context and disruptive trends

Energy sector, energy regulation

and energy markets     4

Government and public policy      5

Clean energy technologies (including

renewables) and climate science     4

International business       6

Digital and data       6

Stakeholders and social impact          9

Skills to challenge and set a sustainable strategy

Large capital project management        7

Financing, economics and capital markets      5

Partnering, M&A and transactions        7

Risk management          9

Consumer insight        7

Responsible leadership of a large organisation

Corporate governance and leadership          9

Culture, safe working and

people development          9

118 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Board of Directors

CHAIR EXECUTIVE

DIRECTORS

Sir John Manzoni

Chair

Alistair Phillips-Davies

Chief Executive

Gregor Alexander

Finance Director

Martin Pibworth

Chief Commercial Officer

Tony Cocker

Senior Independent Director

SHE

ER ER

SHE

Date of appointment

Non-Executive Director since September 2020

and Chair from April 2021

Date of appointment

Executive Director since January 2002 and

Chief Executive from July 2013

Date of appointment

Executive Director and Finance Director

since October 2002

Date of appointment

Executive Director since September 2017

and Chief Commercial Officer from

November 2020

Date of appointment

Non-Executive Director since May 2018 and Senior

Independent Director from October 2020

Board tenure

1 year

Board tenure

20 years

Board tenure

19 years

Board tenure

4 years

Board tenure

4 years

Career and experience

Sir John has wide-ranging experience across the

energy industry and both the private and public

sectors. Through an executive career at BP which

spanned 24 years, he held a number of senior roles

including Chief Executive, Refining and Marketing

in which he was a Main Board member. This was

followed by President and Chief Executive Officer

at Talisman Energy Inc before a move to UK

Government where he spent six years as Chief

Executive of the Civil Service and Permanent

Secretary of the Cabinet Office. He has previously

been a non-Executive Director of SABMiller plc

and Chair of Leyshon Energy Limited.

Career and experience

Alistair joined SSE in 1997 and possesses extensive

knowledge of the Group having held senior roles

across multiple business areas. Prior to joining the

Board in 2002 as Energy Supply Director, Alistair

was Director of Corporate Finance and Business

Development. In 2010, he became Generation

and Supply Director, before Deputy Chief

Executive in 2012, then Chief Executive in 2013.

Alistair is a fellow of the Energy Institute and a

former Vice President of Eurelectric. He is a

Chartered Accountant.

Career and experience

Gregor joined SSE in 1990 and has been Finance

Director on the Board since 2002. Prior to Finance

Director, Gregor worked in senior finance roles and

led specialist teams including as Group Treasurer

and Tax Manager. Gregor is Chair of the Scottish

and Southern Energy Power Distribution Board.

He is a Chartered Accountant and member

of the Accounting for Sustainability (A4S) CFO

Leadership Network.

Career and experience

Martin joined SSE in 1998 as an energy trader,

which was followed by a series of commercial

roles before becoming Managing Director,

Energy Portfolio Management, and a member

of SSE’s then Management Board in 2012.

In 2014, he was appointed Managing Director,

Wholesale, and a member of SSE’s Group

Executive Committee. In 2017 he joined the

Board as Group Energy Director, a role which

was expanded to Group Energy and Commercial

Director in November 2020. This role was

subsequently re-titled Chief Commercial Officer

in March 2022, with no change in underlying

responsibilty or remit.

Career and experience

Tony possesses highly detailed knowledge of

the energy sector through a 20-year career with

E.ON SE and Powergen plc, with at different

times, responsibility for: thermal generation;

onshore and offshore wind (including Scroby

Sands and the London Array, which was the

world’s largest offshore wind farm when built);

commodity trading and risk management; and

retail. Latterly, he held the position of CEO and

Chair of E.ON UK plc, comprising the Company’s

main businesses in the UK. Previous roles include

CEO of E.ON Energy Trading SE, which managed

E.ON SE’s commodity portfolio across Europe,

and Managing Director of E.ON UK Energy

Wholesale, which comprised E.ON UK’s

renewable, generation, and trading businesses.

He has served on the Board of Energy UK.

Skills and attributes which support strategy

and long-term success

• Dynamic and engaging leadership style

with diverse perspectives gained across

multiple sectors, organisational settings

and geographies, which complement the

responsibilities of SSE Chair.

• Experienced in the governance of large scale

business operations, leading reform and the

management of complex projects to drive

commercial performance, skills key to the

fulfilment of SSE’s vision and purpose.

• Strong communicator with insight into the

management and development of stakeholder

relations aligned with SSE’s approach to

decision-making.

• Working knowledge of energy regulation,

government and policy considerations which

underpin the success of a net zero transition.

Skills and attributes which support strategy

and long-term success

• Sound executive leadership and a considered

approach to strategy which is evidenced

through continued delivery under the Group

operating model, SSE’s growth ambitions and

progression of SSE’s sustainability plans and

associated targets.

• Broad knowledge of the energy markets in

Great Britain and Ireland and across Europe,

which informs views of long-term direction.

• Detailed understanding of the external

context including the climate transition,

politics and regulation enabling constructive

engagement in these areas.

• Proactive approach to understanding

stakeholder priorities including the impact

of the coronavirus pandemic and SSE’s

societal response to the net zero transition.

• Focused on people development, culture

and digital enablement in order to develop

capabilities for future growth.

Skills and attributes which support strategy

and long-term success

• Extensive knowledge of financial markets

as leader of SSE’s financial strategy, including

the approach to sustainable financing and

emerging practice in this area.

• Experienced in directing significant corporate

projects and major transactions, including

SSE’s approach to investments, divestments

and partnering.

• Oversees appropriate governance in the

management of the Group risk environment

including those emerging from the evolving

energy sector and the transition to net zero.

• Deep appreciation of shareholder views and

related ESG matters including the continued

commitment to lead on fair tax and fair work

as part of SSE’s 2030 Goals.

• Practical regulatory insight and Board

oversight of SSE’s networks businesses.

Skills and attributes which support strategy

and long-term success

• Literacy in complex energy markets which

is supported by technical and operational

expertise.

• End-to-end experience in large capital

projects including joint venture engagement

and governance, which has been applied

in the development of SSE’s diverse and

flexible generation portfolio, including the

renewables pipeline.

• Commercially minded in seeking future

growth within SSE’s market-based businesses,

and has overseen key capital recycling

opportunities and transactions to refine

SSE’s business mix and secure optimum

value from investments.

• Understanding of change management and

sources of commercial risk having led on SSE’s

Brexit transition arrangements, and the impact

of coronavirus on energy markets.

Skills and attributes which support strategy

and long-term success

• Wide-ranging insight regarding technical

and operational matters, including energy

infrastructure and assets, commodity markets,

energy trading and risk.

• Experience delivering major renewable energy

projects.

• Combined energy industry and non-Executive

experience enhances Board understanding of

trends relevant to SSE’s operations and of

utilities regulation.

• A balanced sounding board with additive

experience in strategic consultancy and

energy and utility stakeholder management.

Key external appointments and changes

• Non-Executive Director of Diageo.

• Chair of the Atomic Weapons Establishment.

• Non-Executive Director of KBR Inc from

May 2022.

Key external appointments and changes

• Member of the Scottish Energy

Advisory Board.

• Member of the UK Government’s Hydrogen

Advisory Council.

• Member of the COP26 Business Leaders

group.

Key external appointments and changes

• Non-Executive Director of Stagecoach

Group plc.

• Stepped down as a Director of Scotia Gas

Networks Limited in March 2022.

Key external appointments and changes

• Member of Energy UK Board.

Key external appointments and changes

• Chair of Infinis Energy Management Limited.

• Visiting Professor at Aston University from

January 2022.

• Stepped down as Deputy Chair and Governor

of Warwick Independent Schools Foundation

in September 2021.

119SSE plc Annual Report 2022

INDEPENDENT

NON-EXECUTIVE DIRECTORS

Sir John Manzoni

Chair

Alistair Phillips-Davies

Chief Executive

Gregor Alexander

Finance Director

Martin Pibworth

Chief Commercial Officer

Tony Cocker

Senior Independent Director

SHE

ER ER

SHE

Date of appointment

Non-Executive Director since September 2020

and Chair from April 2021

Date of appointment

Executive Director since January 2002 and

Chief Executive from July 2013

Date of appointment

Executive Director and Finance Director

since October 2002

Date of appointment

Executive Director since September 2017

and Chief Commercial Officer from

November 2020

Date of appointment

Non-Executive Director since May 2018 and Senior

Independent Director from October 2020

Board tenure

1 year

Board tenure

20 years

Board tenure

19 years

Board tenure

4 years

Board tenure

4 years

Career and experience

Sir John has wide-ranging experience across the

energy industry and both the private and public

sectors. Through an executive career at BP which

spanned 24 years, he held a number of senior roles

including Chief Executive, Refining and Marketing

in which he was a Main Board member. This was

followed by President and Chief Executive Officer

at Talisman Energy Inc before a move to UK

Government where he spent six years as Chief

Executive of the Civil Service and Permanent

Secretary of the Cabinet Office. He has previously

been a non-Executive Director of SABMiller plc

and Chair of Leyshon Energy Limited.

Career and experience

Alistair joined SSE in 1997 and possesses extensive

knowledge of the Group having held senior roles

across multiple business areas. Prior to joining the

Board in 2002 as Energy Supply Director, Alistair

was Director of Corporate Finance and Business

Development. In 2010, he became Generation

and Supply Director, before Deputy Chief

Executive in 2012, then Chief Executive in 2013.

Alistair is a fellow of the Energy Institute and a

former Vice President of Eurelectric. He is a

Chartered Accountant.

Career and experience

Gregor joined SSE in 1990 and has been Finance

Director on the Board since 2002. Prior to Finance

Director, Gregor worked in senior finance roles and

led specialist teams including as Group Treasurer

and Tax Manager. Gregor is Chair of the Scottish

and Southern Energy Power Distribution Board.

He is a Chartered Accountant and member

of the Accounting for Sustainability (A4S) CFO

Leadership Network.

Career and experience

Martin joined SSE in 1998 as an energy trader,

which was followed by a series of commercial

roles before becoming Managing Director,

Energy Portfolio Management, and a member

of SSE’s then Management Board in 2012.

In 2014, he was appointed Managing Director,

Wholesale, and a member of SSE’s Group

Executive Committee. In 2017 he joined the

Board as Group Energy Director, a role which

was expanded to Group Energy and Commercial

Director in November 2020. This role was

subsequently re-titled Chief Commercial Officer

in March 2022, with no change in underlying

responsibilty or remit.

Career and experience

Tony possesses highly detailed knowledge of

the energy sector through a 20-year career with

E.ON SE and Powergen plc, with at different

times, responsibility for: thermal generation;

onshore and offshore wind (including Scroby

Sands and the London Array, which was the

world’s largest offshore wind farm when built);

commodity trading and risk management; and

retail. Latterly, he held the position of CEO and

Chair of E.ON UK plc, comprising the Company’s

main businesses in the UK. Previous roles include

CEO of E.ON Energy Trading SE, which managed

E.ON SE’s commodity portfolio across Europe,

and Managing Director of E.ON UK Energy

Wholesale, which comprised E.ON UK’s

renewable, generation, and trading businesses.

He has served on the Board of Energy UK.

Skills and attributes which support strategy

and long-term success

• Dynamic and engaging leadership style

with diverse perspectives gained across

multiple sectors, organisational settings

and geographies, which complement the

responsibilities of SSE Chair.

• Experienced in the governance of large scale

business operations, leading reform and the

management of complex projects to drive

commercial performance, skills key to the

fulfilment of SSE’s vision and purpose.

• Strong communicator with insight into the

management and development of stakeholder

relations aligned with SSE’s approach to

decision-making.

• Working knowledge of energy regulation,

government and policy considerations which

underpin the success of a net zero transition.

Skills and attributes which support strategy

and long-term success

• Sound executive leadership and a considered

approach to strategy which is evidenced

through continued delivery under the Group

operating model, SSE’s growth ambitions and

progression of SSE’s sustainability plans and

associated targets.

• Broad knowledge of the energy markets in

Great Britain and Ireland and across Europe,

which informs views of long-term direction.

• Detailed understanding of the external

context including the climate transition,

politics and regulation enabling constructive

engagement in these areas.

• Proactive approach to understanding

stakeholder priorities including the impact

of the coronavirus pandemic and SSE’s

societal response to the net zero transition.

• Focused on people development, culture

and digital enablement in order to develop

capabilities for future growth.

Skills and attributes which support strategy

and long-term success

• Extensive knowledge of financial markets

as leader of SSE’s financial strategy, including

the approach to sustainable financing and

emerging practice in this area.

• Experienced in directing significant corporate

projects and major transactions, including

SSE’s approach to investments, divestments

and partnering.

• Oversees appropriate governance in the

management of the Group risk environment

including those emerging from the evolving

energy sector and the transition to net zero.

• Deep appreciation of shareholder views and

related ESG matters including the continued

commitment to lead on fair tax and fair work

as part of SSE’s 2030 Goals.

• Practical regulatory insight and Board

oversight of SSE’s networks businesses.

Skills and attributes which support strategy

and long-term success

• Literacy in complex energy markets which

is supported by technical and operational

expertise.

• End-to-end experience in large capital

projects including joint venture engagement

and governance, which has been applied

in the development of SSE’s diverse and

flexible generation portfolio, including the

renewables pipeline.

• Commercially minded in seeking future

growth within SSE’s market-based businesses,

and has overseen key capital recycling

opportunities and transactions to refine

SSE’s business mix and secure optimum

value from investments.

• Understanding of change management and

sources of commercial risk having led on SSE’s

Brexit transition arrangements, and the impact

of coronavirus on energy markets.

Skills and attributes which support strategy

and long-term success

• Wide-ranging insight regarding technical

and operational matters, including energy

infrastructure and assets, commodity markets,

energy trading and risk.

• Experience delivering major renewable energy

projects.

• Combined energy industry and non-Executive

experience enhances Board understanding of

trends relevant to SSE’s operations and of

utilities regulation.

• A balanced sounding board with additive

experience in strategic consultancy and

energy and utility stakeholder management.

Key external appointments and changes

• Non-Executive Director of Diageo.

• Chair of the Atomic Weapons Establishment.

• Non-Executive Director of KBR Inc from

May 2022.

Key external appointments and changes

• Member of the Scottish Energy

Advisory Board.

• Member of the UK Government’s Hydrogen

Advisory Council.

• Member of the COP26 Business Leaders

group.

Key external appointments and changes

• Non-Executive Director of Stagecoach

Group plc.

• Stepped down as a Director of Scotia Gas

Networks Limited in March 2022.

Key external appointments and changes

• Member of Energy UK Board.

Key external appointments and changes

• Chair of Infinis Energy Management Limited.

• Visiting Professor at Aston University from

January 2022.

• Stepped down as Deputy Chair and Governor

of Warwick Independent Schools Foundation

in September 2021.

Key

Committee membership

Nomination Committee

Audit Committee

Energy Markets Risk Committee

SHE

Safety, Sustainability, Health and Environment

Advisory Committee

Remuneration Committee

Committee Chair

External appointments

The Board considered and approved

the additional external commitments

taken on by Sir John Manzoni, Tony

Cocker, Peter Lynas and Helen Mahy

during the period. In each case, it was

agreed that there would be no impact

on the time commitment required as

Chair and non-Executive Director, nor

on the independence and objectivity

required to discharge the agreed

responsibilities of each role. The

resultant position is believed to be

consistent with recognised proxy

advisor guidelines.

120 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Board of Directors continued

INDEPENDENT

NON-EXECUTIVE DIRECTORS

Dame Elish Angiolini QC

Non-Executive Director

Dame Sue Bruce DBE

Non-Executive Director of the Board and for

Employee Engagement

Debbie Crosbie

Non-Executive Director

Peter Lynas

Non-Executive Director

Helen Mahy CBE

Non-Executive Director

Melanie Smith CBE

Non-Executive Director

SHE

Date of appointment

Non-Executive Director since September 2021

Date of appointment

Non-Executive Director since September 2013

Date of appointment

Non-Executive Director since September 2021

Date of appointment

Non-Executive Director since July 2014

Date of appointment

Non-Executive Director since March 2016

Date of appointment

Non-Executive Director since January 2019

Board tenure

Under 1 year

Board tenure

8 years

Board tenure

Under 1 year

Board tenure

7 years

Board tenure

6 years

Board tenure

3 years

Career and experience

Dame Elish has an extensive public sector legal

career, serving as Lord Advocate of Scotland

from 2006 to 2011, across two government

administrations, having previously been Solicitor

General for Scotland. Since then, she has carried

out a number of independent public inquiries and

reviews for both the UK and Scottish Governments

and held positions in academia having served as

Principal of St Hugh’s College Oxford since 2012.

She is also currently a Pro-Vice Chancellor of

Oxford University and previous Chancellor of

the University of West of Scotland. Dame Elish

is Chair of the Discipline Board of the Institute

of Chartered Accountants of Scotland (ICAS),

Chair of the Board of trustees for the legal action

non-governmental group Reprieve and a patron

of several charities.

Career and experience

Dame Sue has extensive public sector experience

from a career which spanned almost 40 years,

holding a variety of roles in local government.

These included the positions of Chief Executive at

East Dunbartonshire Council and the first female

Chief Executive of both Aberdeen City Council and

the City of Edinburgh Council. Sue has also held a

number of Board and Board Committee positions

in organisations across the arts, education and

charitable sectors.

Career and experience

Debbie brings over 25 years of experience in

financial services leadership, having recently

been appointed as the first female Chief Executive

of Nationwide Building Society. Prior to this

appointment, Debbie served as CEO of TSB from

May 2019 and was previously an Executive Director

and Chief Operating Office of Clydesdale Bank,

where she led preparations for its successful

demerger and subsequent IPO. Debbie worked at

National Australia Bank Group Europe for 22 years.

Debbie is a fellow of the Chartered Institute of

Bankers and a member of the Glasgow Economic

Leadership Board and the Strathclyde University

Business School Advisory Board.

Career and experience

Peter has over 30 years of business experience

spanning all areas of finance. He retired from the

role of Group Finance Director of BAE Systems plc

in March 2020, prior to which he was Director,

Financial Control, Reporting and Treasury. His early

career involved roles within GEC Marconi, where

he was appointed Finance Director of Marconi

Electronic Systems before the completion of

the British Aerospace/Marconi merger. He is

a Fellow of the Chartered Association of

Certified Accountants.

Career and experience

Helen is a former Company Secretary and General

Counsel of National Grid plc and an experienced

non-Executive Director. Previous non-Executive

roles include directorships at Bonheur ASA, Aga

Rangemaster plc, Stagecoach Group plc, SVG

Capital plc, Chair of MedicX Fund Limited and

Deputy Chair and Senior Independent Director of

Primary Health Properties PLC. Helen is currently

Chair of The Renewables Infrastructure Group

Limited, a member of the Parker Review steering

committee into the Ethnic Diversity of UK Boards,

a patron of the charity Social Mobility Business

Partnership, Co-chair of the Employers Social

Mobility Alliance and an Equality and Human

Rights Commissioner.

Career and experience

Melanie has over 20 years of in-depth strategy

experience and is currently CEO of Ocado Retail,

the world’s largest pureplay online grocer and

the UK’s fastest growing grocer. Prior to this she

was Strategy Director for Marks & Spencer with

responsibility for group strategy, M&S Bank and

M&S Services. Earlier roles include Global Strategy

and Marketing Director at Bupa, Chief Operating

Officer at TalkTalk and a Partner in McKinsey’s

Consumer practice.

Skills and attributes which support strategy and

long-term success

• Possesses significant understanding of

Scottish governance and has practical

experience of working with the UK and

Scottish governments through involvement

in independent public reviews, whilst

maintaining no political affiliation.

• Strong ambassadorial skills developed through

an international network of colleagues and

contacts in judicial, governmental, diplomatic,

and academic fields.

• Exercises a strong sense of social purpose

and adds depth of perspective to Board

considerations, reinforcing SSE’s approach

to wider value creation.

Skills and attributes which support strategy and

long-term success

• Strategic and operational experience of

leading organisations covering large numbers

of employees, significant assets, economic

development, construction projects and

engaging with communities, which provides

insight into SSE’s approach to its social

contract.

• Distinguished in stakeholder engagement

with a highly personable style as is evident

in the roles of Remuneration Committee

Chair and Non-Executive Director for

Employee Engagement.

• Expert knowledge of Scottish government

and understanding of political affairs.

Skills and attributes which support strategy and

long-term success

• Extensive experience of the implementation

of strategy including significant corporate

transaction work and execution of

far-reaching transformation projects,

including the changing role of digital

and data in the context of a large

consumer-facing organisation.

• Understanding of capital allocation and

investment appraisal frameworks central

to the next phase of SSE’s growth.

• Knowledge of operating in a heavily regulated

sector requiring a compliance-driven approach

and proficiency in risk management and

internal controls.

Skills and attributes which support strategy and

long-term success

• Brings recent and relevant financial

experience to the Board and strong direction

to the Audit Committee, as Chair of which,

he drives focus on the risk and control

environment including Group resilience

and the ethics and compliance culture.

• International business perspective and

an applied understanding of long-term

project management and delivery, including

investment appraisal, contracting and supply

chain experience.

• Up-to-date investor relations experience

through his executive career at BAE and

pensions insight having been Chair of the

trustee Board of a major UK scheme.

Skills and attributes which support strategy and

long-term success

• Long-standing energy, regulatory and

renewables experience, underpinned by a

comprehensive understanding of the listed

company context including the applicable

legal, compliance, governance and risk

frameworks in which SSE’s businesses

operate.

• Insight into a broad range of investor and

stakeholder perspectives and trends from

cross-sectoral, international and external

Board interests that enable wider discussion

and debate.

• A decade of experience overseeing

renewables infrastructure investment.

• An advocate of SSE’s safety culture, inclusion

and diversity, and employee wellbeing; with

extensive knowledge of people matters and

a focus on sustainability.

Skills and attributes which support strategy and

long-term success

• Highly qualified to appraise strategy

development and execution, having advised

and led both growth and performance

transformation in the consumer and retail

sectors worldwide.

• Deep commercial and digital experience

across multiple goods and services categories,

including insurance, telco and energy that

furthers Board understanding of the customer.

• Has a people centric style as an executive and

organisational leader, and brings knowledge

of operational efficiency and change

management.

Key external appointments and changes

• Pro-Vice Chancellor of the University

of Oxford.

• Principal of St Hugh’s College Oxford.

• Chair of the Discipline Board of ICAS.

• Chair of the Sarah Everard Inquiry.

• Chair of Board of Trustees of Reprieve.

Key external appointments and changes

• Convenor of Court of the University of

Strathclyde.

• Chair of the Royal Scottish National Orchestra.

• Electoral Commissioner, the Electoral

Commission.

• Independent Chair of Nominations

Committee, the National Trust for Scotland.

• Chair of Trustees of the Prince’s Foundation.

Key external appointments and changes

• Chief Executive of Nationwide Building

Society (to commence in 2022).

• Member of the Glasgow Economic Leadership

Board.

• Member of the Business School Advisory

Board of Strathclyde University.

Key external appointments and changes

• Senior Independent Director of First Group

plc from June 2021.

Key external appointments and changes

• Chair of The Renewables Infrastructure

Group Limited.

• Commissioner for The Equality and Human

Rights Commission.

• Non-Executive Director of Gowling WLG (UK)

LLP from September 2021.

Key external appointments and changes

• CEO, Ocado Retail Limited.

• Advisory Board member of Manaia.

• Trustee of Sadlers Wells.

121SSE plc Annual Report 2022

Dame Elish Angiolini QC

Non-Executive Director

Dame Sue Bruce DBE

Non-Executive Director of the Board and for

Employee Engagement

Debbie Crosbie

Non-Executive Director

Peter Lynas

Non-Executive Director

Helen Mahy CBE

Non-Executive Director

Melanie Smith CBE

Non-Executive Director

SHE

Date of appointment

Non-Executive Director since September 2021

Date of appointment

Non-Executive Director since September 2013

Date of appointment

Non-Executive Director since September 2021

Date of appointment

Non-Executive Director since July 2014

Date of appointment

Non-Executive Director since March 2016

Date of appointment

Non-Executive Director since January 2019

Board tenure

Under 1 year

Board tenure

8 years

Board tenure

Under 1 year

Board tenure

7 years

Board tenure

6 years

Board tenure

3 years

Career and experience

Dame Elish has an extensive public sector legal

career, serving as Lord Advocate of Scotland

from 2006 to 2011, across two government

administrations, having previously been Solicitor

General for Scotland. Since then, she has carried

out a number of independent public inquiries and

reviews for both the UK and Scottish Governments

and held positions in academia having served as

Principal of St Hugh’s College Oxford since 2012.

She is also currently a Pro-Vice Chancellor of

Oxford University and previous Chancellor of

the University of West of Scotland. Dame Elish

is Chair of the Discipline Board of the Institute

of Chartered Accountants of Scotland (ICAS),

Chair of the Board of trustees for the legal action

non-governmental group Reprieve and a patron

of several charities.

Career and experience

Dame Sue has extensive public sector experience

from a career which spanned almost 40 years,

holding a variety of roles in local government.

These included the positions of Chief Executive at

East Dunbartonshire Council and the first female

Chief Executive of both Aberdeen City Council and

the City of Edinburgh Council. Sue has also held a

number of Board and Board Committee positions

in organisations across the arts, education and

charitable sectors.

Career and experience

Debbie brings over 25 years of experience in

financial services leadership, having recently

been appointed as the first female Chief Executive

of Nationwide Building Society. Prior to this

appointment, Debbie served as CEO of TSB from

May 2019 and was previously an Executive Director

and Chief Operating Office of Clydesdale Bank,

where she led preparations for its successful

demerger and subsequent IPO. Debbie worked at

National Australia Bank Group Europe for 22 years.

Debbie is a fellow of the Chartered Institute of

Bankers and a member of the Glasgow Economic

Leadership Board and the Strathclyde University

Business School Advisory Board.

Career and experience

Peter has over 30 years of business experience

spanning all areas of finance. He retired from the

role of Group Finance Director of BAE Systems plc

in March 2020, prior to which he was Director,

Financial Control, Reporting and Treasury. His early

career involved roles within GEC Marconi, where

he was appointed Finance Director of Marconi

Electronic Systems before the completion of

the British Aerospace/Marconi merger. He is

a Fellow of the Chartered Association of

Certified Accountants.

Career and experience

Helen is a former Company Secretary and General

Counsel of National Grid plc and an experienced

non-Executive Director. Previous non-Executive

roles include directorships at Bonheur ASA, Aga

Rangemaster plc, Stagecoach Group plc, SVG

Capital plc, Chair of MedicX Fund Limited and

Deputy Chair and Senior Independent Director of

Primary Health Properties PLC. Helen is currently

Chair of The Renewables Infrastructure Group

Limited, a member of the Parker Review steering

committee into the Ethnic Diversity of UK Boards,

a patron of the charity Social Mobility Business

Partnership, Co-chair of the Employers Social

Mobility Alliance and an Equality and Human

Rights Commissioner.

Career and experience

Melanie has over 20 years of in-depth strategy

experience and is currently CEO of Ocado Retail,

the world’s largest pureplay online grocer and

the UK’s fastest growing grocer. Prior to this she

was Strategy Director for Marks & Spencer with

responsibility for group strategy, M&S Bank and

M&S Services. Earlier roles include Global Strategy

and Marketing Director at Bupa, Chief Operating

Officer at TalkTalk and a Partner in McKinsey’s

Consumer practice.

Skills and attributes which support strategy and

long-term success

• Possesses significant understanding of

Scottish governance and has practical

experience of working with the UK and

Scottish governments through involvement

in independent public reviews, whilst

maintaining no political affiliation.

• Strong ambassadorial skills developed through

an international network of colleagues and

contacts in judicial, governmental, diplomatic,

and academic fields.

• Exercises a strong sense of social purpose

and adds depth of perspective to Board

considerations, reinforcing SSE’s approach

to wider value creation.

Skills and attributes which support strategy and

long-term success

• Strategic and operational experience of

leading organisations covering large numbers

of employees, significant assets, economic

development, construction projects and

engaging with communities, which provides

insight into SSE’s approach to its social

contract.

• Distinguished in stakeholder engagement

with a highly personable style as is evident

in the roles of Remuneration Committee

Chair and Non-Executive Director for

Employee Engagement.

• Expert knowledge of Scottish government

and understanding of political affairs.

Skills and attributes which support strategy and

long-term success

• Extensive experience of the implementation

of strategy including significant corporate

transaction work and execution of

far-reaching transformation projects,

including the changing role of digital

and data in the context of a large

consumer-facing organisation.

• Understanding of capital allocation and

investment appraisal frameworks central

to the next phase of SSE’s growth.

• Knowledge of operating in a heavily regulated

sector requiring a compliance-driven approach

and proficiency in risk management and

internal controls.

Skills and attributes which support strategy and

long-term success

• Brings recent and relevant financial

experience to the Board and strong direction

to the Audit Committee, as Chair of which,

he drives focus on the risk and control

environment including Group resilience

and the ethics and compliance culture.

• International business perspective and

an applied understanding of long-term

project management and delivery, including

investment appraisal, contracting and supply

chain experience.

• Up-to-date investor relations experience

through his executive career at BAE and

pensions insight having been Chair of the

trustee Board of a major UK scheme.

Skills and attributes which support strategy and

long-term success

• Long-standing energy, regulatory and

renewables experience, underpinned by a

comprehensive understanding of the listed

company context including the applicable

legal, compliance, governance and risk

frameworks in which SSE’s businesses

operate.

• Insight into a broad range of investor and

stakeholder perspectives and trends from

cross-sectoral, international and external

Board interests that enable wider discussion

and debate.

• A decade of experience overseeing

renewables infrastructure investment.

• An advocate of SSE’s safety culture, inclusion

and diversity, and employee wellbeing; with

extensive knowledge of people matters and

a focus on sustainability.

Skills and attributes which support strategy and

long-term success

• Highly qualified to appraise strategy

development and execution, having advised

and led both growth and performance

transformation in the consumer and retail

sectors worldwide.

• Deep commercial and digital experience

across multiple goods and services categories,

including insurance, telco and energy that

furthers Board understanding of the customer.

• Has a people centric style as an executive and

organisational leader, and brings knowledge

of operational efficiency and change

management.

Key external appointments and changes

• Pro-Vice Chancellor of the University

of Oxford.

• Principal of St Hugh’s College Oxford.

• Chair of the Discipline Board of ICAS.

• Chair of the Sarah Everard Inquiry.

• Chair of Board of Trustees of Reprieve.

Key external appointments and changes

• Convenor of Court of the University of

Strathclyde.

• Chair of the Royal Scottish National Orchestra.

• Electoral Commissioner, the Electoral

Commission.

• Independent Chair of Nominations

Committee, the National Trust for Scotland.

• Chair of Trustees of the Prince’s Foundation.

Key external appointments and changes

• Chief Executive of Nationwide Building

Society (to commence in 2022).

• Member of the Glasgow Economic Leadership

Board.

• Member of the Business School Advisory

Board of Strathclyde University.

Key external appointments and changes

• Senior Independent Director of First Group

plc from June 2021.

Key external appointments and changes

• Chair of The Renewables Infrastructure

Group Limited.

• Commissioner for The Equality and Human

Rights Commission.

• Non-Executive Director of Gowling WLG (UK)

LLP from September 2021.

Key external appointments and changes

• CEO, Ocado Retail Limited.

• Advisory Board member of Manaia.

• Trustee of Sadlers Wells.

122 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Board of Directors continued

INDEPENDENT

NON-EXECUTIVE

DIRECTORS

COMPANY

SECRETARY

Dame Angela Strank DBE

Non-Executive Director

John Bason

Non-Executive Director from 1 June 2022

Sally Fairbairn

Company Secretary and Director of Investor

Relations

SHE

Will join the Nomination Committee and Audit

Committee on appointment.

Date of appointment

Non-Executive Director since May 2020

Date of appointment

Joining 1 June 2022

Date of appointment

Company Secretary and Director of Investor

Relations since December 2014

Board tenure

2 years

Career and experience

Dame Angela brings depth of executive experience

from a long-standing international career in the

energy sector, which included 38 years’ service at

BP. Prior to retirement in December 2020, she was

a member of BP’s Executive Management team as

BP Group Chief Scientist and Head of Downstream

Technology. This followed international business

and technical leadership positions spanning

technology and digital, innovation, engineering

and renewable energy. Angela is a Fellow of the

Royal Society, the Royal Academy of Engineers,

and the UK Energy Institute. She was awarded a

DBE for long-standing services to the energy

industry and pioneering STEM careers, especially

for women.

Career and experience

John brings significant listed company, financial

and international experience through a career in

global businesses. He has been Finance Director

of Associated British Foods plc (ABF) since joining

the diverse food, ingredients and retail group in

1999. ABF employs 128,000 people and operates

in 53 countries across Europe, Asia, the Americas,

Australia and Africa. Prior to this, John was Finance

Director of the international distribution and

services group Bunzl plc. His non-Executive

experience includes Senior Independent Director

and Audit Committee Chair of Compass Group

PLC. He is currently Chair of the charitable

organisation FareShare and non-Executive

Director of Bloomsbury Publishing Plc. John is a

Chartered Accountant.

Career and experience

Sally joined SSE in 1997 as a chartered accountant

working in the Corporate Finance team. Through

this role, which included responsibility for

long-term financial modelling of the SSE Group,

she developed knowledge of the SSE’s diverse

operations and the UK energy industry. In 2007,

Sally became Director of Investor Relations and

Analysis allowing her to develop extensive

experience of the shareholder and financial

analyst community, and through associated

engagement, has detailed understanding of

investor views. Sally was appointed to the

joint role of Company Secretary and Director

of Investor Relations in December 2014.

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 industry, including the

impact of disruptive trends and resultant

transformation.

• Knowledge of leading and collaborating

on a large scale and with international

outlook, having worked in culturally diverse

environments in the Middle East, Europe,

the Far East, Africa and America.

• Corporate social responsibility and

sustainability experience through active

involvement in climate science research,

embracing the energy transition, reputation

and safety management, pioneering women

in STEM careers, and as a champion of

inclusion and diversity; chairing the Corporate

Sustainability Committee, and Safety, Ethics

and Sustainability Committee in two FTSE 100

companies.

Skills and attributes which support strategy and

long-term success

• Extensive leadership experience and

international perspective, gained from global

companies and complex operations, which

will be invaluable to SSE’s growth and entry

into new markets.

• A proven track record in developing financial

and commercial strategy, including M&A,

corporate transactions and large capital

projects, which complements SSE’s Net Zero

Acceleration Programme, and supports

succession planning for the role of Audit

Committee Chair.

• Understanding of the listed company context

with practical experience of investor relations

and ESG strategy, placing upmost importance

on the role of sustainability.

Key external appointments and changes

• Non-Executive Director of Rolls Royce plc.

• Non-Executive Director of Mondi plc.

• Stepped down as Non-Executive Director of

Severn Trent plc in March 2022.

Key external appointments and changes

• Finance Director of Associated British Foods plc.

• Chair of FareShare.

• Non-Executive Director of Bloomsbury

Publishing Plc.

INDEPENDENT NON-

EXECUTIVE DIRECTOR

JOINING 1 JUNE 2022

123SSE plc Annual Report 2022

Group Executive Committee

Biographical details of the Executive

Directors and Company Secretary

and Director of Investor Relations.

More on pages 118, 119 and 122 

Alistair Phillips-Davies

Chief Executive

Gregor Alexander

Finance Director

Martin Pibworth

Chief Commercial Officer

Sally Fairbairn

Company Secretary and Director

of Investor Relations, Committee Secretary

Chris Burchell

MD, SSEN Distribution

Rob McDonald

MD, SSEN Transmission

Chris has been MD, SSEN Distribution since

November 2020, having joined SSE from

Arriva where he was MD, UK Trains since 2014.

He began his career at Railtrack in 1996 and

following a period as an official in the Foreign

and Commonwealth Office, joined the Go-Ahead

Group, where he was Director of Operations,

Thames Trains and Managing Director for the

Southern rail franchise.

Rob has been MD, SSEN Transmission since

April 2019, having joined SSE in 1997 and holding

a number of senior roles within the Group

Regulation function. Prior to his current position,

he was MD, Corporate and Business Services

covering Legal, Regulation, Compliance, Safety

and Large Capital Projects Services across SSE.

Liz Tanner

General Counsel

Liz is a barrister and has been Group General

Counsel since March 2019, having joined SSE in

2002 as part of the acquisition of Neos Networks.

Since joining SSE, Liz has held a variety of legal

and commercial roles within a number of different

SSE Group companies and currently oversees

the corporate functions of Legal, Regulation,

Compliance, Data Protection and Large Capital

Project Services.

John Stewart

Director of HR

John has been Director of HR since joining SSE

in July 2009. Prior to this he worked in a broad

range of senior management roles in the energy

and water sectors and has experience of working

in both the UK and in the US. He oversees all areas

in relation to SSE’s people including talent and

capability, training and development, employee

engagement and inclusion and diversity.

Stephen Wheeler

MD, SSE Renewables

Stephen has been MD, SSE Renewables since

January 2022 having previously held the roles

of MD, SSE Thermal and MD, SSE Ireland. Prior to

SSE, he was part of the management team that

grew the Airtricity renewable energy platform

before SSE acquired it in 2008. Before joining

Airtricity, he spent over 10 years working with

ABB and Siemens internationally.

Sam Peacock

Director of Corporate Affairs and Strategy

Sam has been Director of Corporate Affairs

and Strategy since April 2020 and leads SSE’s

teams overseeing government relations,

policy development, employee communications,

external affairs, corporate brand and project

communications. Prior to joining SSE in 2011, Sam

directed government affairs at Ofgem and worked

at leading communications agency Edelman,

as well as in Parliament and in Government.

124 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Board leadership and company purpose

The role of the Board

The primary role of the Board is to lead SSE

in a way that ensures its long-term success,

whilst generating value for shareholders and

wider stakeholders. This is a broad-ranging

duty and is directed by the cornerstones of

SSE’s purpose and vision. The last material

re-definition of these guiding statements

was in 2019/20, when the Board agreed

closer alignment of SSE’s purpose and vision

with its strategic transformation around a

core of clean electricity infrastructure and

its societal role in the net zero transition.

In support of SSE’s purpose and vision,

the Board sets and monitors SSE’s strategy

through a continuing programme of

work. In 2021/22, this saw the approval

and announcement of SSE’s Net Zero

Acceleration Programme. The process

which identified this phase of strategic

growth as the optimum pathway for

all of SSE’s stakeholders is covered on

pages 126 to 129 . Confirmation of how

SSE’s businesses and its associated business

model provide the best possible balance

to deliver long-term value, is set out on

pages 10 to 17 .

Once set by the Board, the implementation

of strategy is the responsibility of the Group

Executive Committee and management

across SSE’s Business Units. Oversight

of performance is achieved through

structured operational and financial

reporting from the Executive Directors

at each Board meeting, in addition to

presentations from each Business Unit

across the year. These presentations

comprise strategic updates and approvals

in line with SSE’s Governance Framework.

Operational and financial performance for

2021/22 is covered across the Strategic

Report on pages 1 to 111 .

Corporate governance in SSE

Corporate governance in SSE can be

explained as the minimum expectations

set by the Board surrounding standards,

responsible conduct and controls. SSE’s

Governance Framework supports this

approach by mapping where accountability

resides in line with delegated authorities,

and in this way, forms part of SSE’s

System of Internal Control as set out

on page 161 .

Areas of importance to the Board and

SSE’s operations influence the features

of the Governance Framework, which

is illustrated, in part, by the Committees

which provide dedicated focus to areas

on behalf of the Board and the Group

Executive Committee. Clarity surrounding

the responsibilities of each Committee

is ensured through approved Terms of

Reference, as determined by a Committee’s

reporting line.

SSE’s Governance Framework

The SSEPD Board oversees SSE’s economically regulated networks businesses in compliance with applicable regulatory licence conditions.

SSE Energy Customer Solutions comprises SSE Airtricity and SSE Business Energy.

Board of Directors

Nomination

Committee

Audit

Committee

Energy Markets

Risk Committee

(EMRC)

Safety, Sustainability,

Health, Environment

and Advisory

Committee (SSHEAC)

Remuneration

Committee

SSEPD Board

SSE

Distributed

Energy

SSE Energy

Customer

Solutions

Energy

Portfolio

Management

Group

Risk

Group

Disclosure

Group

Energy

Markets

Exposure Risk

SSEN

Transmission

SSEN

Distribution

SSE

Renewables

SSE

Thermal

Group Safety,

Health and

Environment

Group Large

Capital

Projects

Group

Investment

Group Executive Committee

Board oversight

Management accountability

See pages 145 to 151  See pages 152 to 161  See pages 162 to 163  See pages 164 to 167  See pages 168 to 199 

Corporate

governance in SSE

Business Unit

Executive Committees

Group

Committees

SSEN

Transmission

SSEN

Distribution

125SSE plc Annual Report 2022

Monitoring of delegated matters is supported

by formal reporting channels. For Board

Committees, this is a personal account

from the non-Executive Director who chairs

the Committee following each Committee

meeting. As set out above, on executive

matters, the Chief Executive, Finance

Director and Chief Commercial Officer are

responsible for providing full updates at each

Board meeting. These mechanisms are in

addition to sub-Committee minutes, written

reports and agreed KPIs to monitor financial

and non-financial performance.

Board reserved matters

In order to safeguard the areas material to

the delivery of SSE’s purpose, vision and

strategy, the Board retains a schedule of

matters reserved for its decision. This ensures

the necessary framework and resources are

in place for the Company to meet its stated

objectives and covers the below areas.

Strategy and performance

• Approval and review of commercial

strategy, business development and

long-term strategic options.

• Oversight of performance in light

of approved strategy and objectives.

• Review and approval of priorities

surrounding SSE’s principal sustainability

impacts, including climate change.

• Major transactions and any material

extension or closure of operations.

Financial management

• Approval of annual operating and

capital expenditure budgets.

• Approval of dividend policy and

key financial communications.

• Changes to the Group’s capital structure.

Risk and control

• Ensuring sound systems of internal

control and risk management.

People and culture

• Approach to people, succession,

and inclusion and diversity.

• Agreement and monitoring of a healthy

corporate culture including SSE’s values

and framework of cultural controls.

Governance

• Changes to Board and Board Committee

structure, size and composition.

• Approval of shareholder

communications.

• Confirmation of stakeholder approach.

• Approval of Board-level corporate

governance matters.

Regulation

• Approval of the electricity distribution

and transmission price control reviews

proposed by Ofgem.

The Schedule of Reserved Matters is one

of a collection of documents which make

up SSE’s Board Charter. The contents

of the Board Charter govern the Board’s

operations and pertinent Group-wide

matters and is subject to annual Board

review and approval.

The Board Charter contains:

• SSE plc’s Articles of Association.*

• Board’s Schedule of Reserved Matters.*

• SSE’s guide to good business ethics.*

• SSE’s Guide to Governance.

• Board Committee Terms of Reference.*

• Non-Audit Services Policy.*

• Procedure for Taking Independent Advice.

• Non-Executive Directors’ Shareholding

Policy.

• Board Inclusion and Diversity Policy.*

• Responsibilities of key Board roles.*

* Documents available in full on

sse.com .

Board operations

The Board, led by the Chair, seeks to

nurture a culture in which informed and

transparent decision-making takes place.

This is supported by clearly defined Board

roles and constructive dialogue within

and outside of meetings. The division

of responsibilities across the Board is

explained on page 142 .

With one of the key responsibilities of

the non-Executive Directors being to

challenge and provide counsel, it is

deemed appropriate that relationships

can be built across different levels of SSE.

The Board therefore has unfettered

access to senior leadership, their teams

and specialist functions. For details of

employee engagement and knowledge

development in 2021/22 see pages 137

to 139 and 148 .

Structured meeting agendas are developed

by the Chair, Chief Executive and Company

Secretary, around an agreed annual plan of

Board business and the current status of

projects, strategic workstreams and the

overarching operating context. Adequate

time is allocated to support effective and

constructive discussion, and guidance is

available to authors and presenters of

Board materials. An electronic meeting

portal allows efficient navigation of papers,

information and requests.

Prior to every Board meeting, the non-

Executive Directors meet without the

Executive Directors present. This allows any

issues surrounding meeting business to be

raised in advance of full Board discussion.

Further time is set aside at the end of every

meeting to capture any emerging areas for

non-Executive focus.

Board

Nomination

Committee

Audit

Committee EMRC SSHEAC

Remuneration

Committee

Number of meetings held

6 6 4 5 4 5

Sir John Manzoni 6/6 6/6 5/5 4/4 5/5

Alistair Phillips-Davies 6/6

Gregor Alexander 6/6 5/5

Martin Pibworth

6/6 5/5 1/1

Tony Cocker 6/6 6/6 4/4 5/5 4/4

Dame Elish Angiolini

4/4 4/4 3/3 3/3

Dame Sue Bruce

5/6 6/6 5/5

Debbie Crosbie

4/4 4/4 1/1 1/1

Peter Lynas 6/6 6/6 4/4 5/5

Helen Mahy 6/6 6/6 4/4 4/4

Melanie Smith 6/6 6/6 5/5 4/5

Dame Angela Strank 6/6 6/6 4/4 5/5

1 Martin Pibworth joined the SSHEAC on 1 January 2022.

2 Dame Elish Angiolini joined the Board and Nomination Committee on 1 September 2021, the SSHEAC

on 26 October 2021 and Remuneration Committee on 15 November 2021.

3 Dame Sue Bruce was unable to join the 2021 July Board meeting and Melanie Smith was unable to attend

the 2021 July Remuneration Committee meeting – both were due to unavoidable personal matters.

Full comments on meeting packs were provided in advance to the Company Secretary and Chair.

4 Debbie Crosbie joined the Board and Nomination Committee on 1 September 2021 and the EMRC

and Audit Committee on 23 February 2022.

Board meetings in 2021/22

In the period to 31 March 2022, there were

six scheduled meetings of the Board with

update calls in alternate months to maintain

coverage of key business developments,

emerging issues and opportunities.

Arrangements remain in place should a

Board decision or approval be required

outside these times.

Across the year, Board meetings were

conducted in line with applicable

government guidance, with the physical

element returning when it was safe

to do so. Details of Board meeting

activity in 2021/22 can be found on

pages 126 to 133 .

126 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Renewables

Networks

Thermal/other

Board leadership and company purpose continued

Fully-funded

£12.5bn

capex plan

to 2026

Business Unit

capital allocation

Robust funding

structure

~4.5x

net debt to

EBITDA ratio

Growth

enabling

dividend plan

to 2026

2031 targets

including

1.5°C

science-based

targets

On 17 November 2021, SSE announced

a strategic update through its Net Zero

Acceleration Programme (the Programme).

The Programme was the result of a robust

review process conducted by the Board,

which considered: SSE’s integrated business

model of market-based and economically-

regulated; the growth opportunities

available across this mix; alongside the

full range of strategic and structural

alternatives. This included options for

disaggregation or ‘break-up’ of some

elements of the SSE Group. Each phase

of the review was governed in line with

the Board’s responsibility for setting SSE’s

strategy and promoting long-term value for

all stakeholders. Further details of the

principal decisions and considerations

in 2020/21 which formed the backdrop

to work in 2021/22, can be found on

pages 106 to 109  of SSE’s Annual Report

2021 .

The following pages provide an overview of the breadth of Board work across meetings

in 2021/22. This profiles both the review and reset of SSE’s long-term strategic

ambition and the Board’s continued oversight of strategic delivery which, together,

represent the suite of strategy-related principal decisions taken in the year.

Inputs:

• Five-year financial

outlook

• 2021/22 budget

• Annual strategy

review preview

• Biannual broker session

• Group Principal

Risk work

Inputs:

• Annual Group

Strategy sessions

• Business Unit

presentations

• Externally-facilitated

sector analysis

• Board deep dives

Inputs:

• Shareholder

Engagement

sub-Committee

insights

• External advisor

analysis and findings

Inputs:

• Board review

of progress

• Re-alignment of

supporting governance

and frameworks

• Continued stakeholder

and shareholder

engagement

APR MAY JUN JUL AUG SEP MAY JUN JUL AUG SEP AUG SEP OCT NOV NOV DEC JAN FEB MAR

AUG SEP OCT NOV

Five-year £7.5bn

capex plan to 2025

>£2bn non-core disposal

programme to Autumn 2021

Five-year dividend

plan to March 2023

Strategic review and

Board focus in 2021/22

Review of

strategic

situation

Assessment

of strategic

options

Incorporating

external views

and challenge

Governing

strategic

execution

Previously agreed strategic objectives

Net Zero Acceleration Programme

Resetting strategic ambition

More on pages 4 to 5 

127SSE plc Annual Report 2022

Review of strategic situation

Assessment of strategic options

In May 2021, the Board confirmed within

SSE’s preliminary results statement, that

it intended to assess significant and

emerging potential capital and investment

opportunities, across the coming months,

which were not reflected in the previously

agreed £7.5bn capital investment plan. This

decision was supported by the agreed

capital investment being largely contracted;

the strength of execution across the £2bn

non-core disposal programme; and

preliminary analysis of SSE’s short, medium

and long-term strategic situation as part of

the Board’s ongoing strategy review work.

With the existing dividend plan set to March

2023, the Board had further indicated it

would provide an update on the approach

to shareholder remuneration beyond the

current dividend plan by May 2022.

Through dedicated sessions across May

to July 2021, the Board confirmed SSE’s

strategic progress, and based on this position,

engaged in targeted debate to agree further

strategic opportunities for analysis and

refinement. The robust quality of the

information to support this phase of Board

discussion was assured through a broad

range of inputs. These included external

energy sector analyses and dedicated work

from specialist internal teams including

Corporate Finance, Energy Economics,

Business Unit Leadership and Group Strategy.

An overview of the topics which shaped

Board debate across May to July 2021 is

set out below.

• Purpose and long-term shape of

the Group

The Board considered and reaffirmed

the continued role of SSE’s purpose

and strategy focused on a core of

low-carbon electricity infrastructure

against the growing external importance

of a net zero transition by 2050. This

considered views on decarbonisation of

the power sector, covering: technology,

security of supply and energy markets;

the current policy and regulatory

framework to support the sector

transition; the competitive landscape;

and Business Unit-specific roles and

trends. Further details of the key trends

within SSE’s external operating context

can be found on pages 28 to 31 .

• Capital allocation, long term growth

opportunities and strategic choices

Substantive discussion covered net

zero-linked growth options to 2050 and

the view of risk-adjusted returns across

SSE’s current markets, pipeline and

technologies. This further tested the

synergies and optimum balance across

the business mix to confirm where

maximum value could be created;

the overall fit of available long-term

strategic trajectories; SSE’s capability and

competencies; and the strength of the

existing platform for overall long-term

growth across geographies, including

internationally.

• Funding and financial strategy

Modelling and analysis assessed

the sources of funding available to

pursue strategic options, retain financial

stability and support strong investment

grade credit and credit capacity. It

also considered funding for each

growth opportunity, across a range

of valuation scenarios and time-

horizons. This further evaluated the

ability to retain optionality and seize

future opportunities whilst delivering

sustained long-term shareholder value.

On an ongoing basis, strategic work is

supported through Board participation

in deep dives which cover sector specific

issues and matters of potential strategic

significance. These sessions are facilitated

by internal and external subject matter

experts. Further details of sessions held

in 2021/22 are covered on page 148 .

MAY JUN JUL

Incorporating external views and challenge

Wider stakeholder views

Stakeholder views are gathered through an

extensive network of strategic engagement

across SSE as explained on pages 32 to

39 , and within the framework set by the

Board described on page 134 .

Across the strategic review process, the

position of SSE’s six key stakeholder groups

was incorporated across each of the

long-term pathways, with an explanation

of how the Programme embodies the

optimal outcome for all set out overleaf.

External analysis of SSE’s appraisal

In addition to internal debate, the Board

engaged external legal and financial advice

to test the key elements of the identified

strategic options. To preserve objectivity,

two independent workstreams were

created. One led by financial advisors

from SSE’s brokers and the other led

by an independent financial advisor.

The findings of each workstream were

presented separately to the Board. The

work was concluded over a phased three

month period to allow the Board to fully

appraise the respective evaluations and

reflect on the priorities gathered by an

agreed Shareholder Engagement sub-

Committee (see page 128 ).

The scope of the external analysis across

this period covered:

• Total Shareholder Returns of different

strategic alternatives.

• Growth optionality and potential across

Business Units.

• SSE’s investment case and business

model valuation.

• Financing, credit profile and the ability

to fund growth.

• Dis-synergies and separation costs

which were verified by an independent

external advisor.

• Disruption to execution of investments

critical to net zero.

• Wider impacts on stakeholders.

AUG SEP OCT NOV

APR MAY

128 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Board leadership and company purpose continued

Strategic review and Board focus in 2021/22 continued

Net Zero Acceleration Programme

In November 2021, the Board was satisfied

with its strategic assessment, including the

level of scrutiny and challenge which had

been applied to confirm the opportunities

and risks across the available options. In

concluding the Programme was the correct

pathway in the next phase of growth for

SSE, the Board assessed the following

outcomes for long-term success and

each of SSE’s six key stakeholder groups.

• Sustainable long-term growth

Delivering on growth opportunities

across SSE’s core electricity infrastructure

businesses is the fundamental long-term

driver of value. This would be best

achieved through balance sheet strength

and funding options, derived from a

re-balancing of the mix of market-based

and economically-regulated businesses

through a minority networks stake sale.

• Shareholder value and ESG

SSE’s business mix continues to

support a clear ESG investor story,

with total long-term shareholder

returns maximised from earnings and

asset value growth across net zero-

orientated opportunities. Recognising

the importance of shareholder

remuneration through dividends, a

rebased dividend at an absolute level

with attractive growth was deemed as

the correct balance to meet the needs

of those who invest for sustained annual

returns, whilst promoting continued

long-term success. The Programme

also highlights that a minority networks

stake sale will rebalance the expected

allocation of capex across SSE’s

businesses over the longer-term,

and retains SSE’s ability to harness

the significant growth opportunities to

SSE’s networks businesses, as investment

in national critical infrastructure remains

central to the net zero transition.

• People, skills, capability and culture

SSE’s greatest asset is the experience

and expertise of its employees, and the

Programme continues to champion

SSE’s principles for providing and creating

good, green jobs (see also page 60 ).

The assessment of break-up scenarios

concluded substantial dis-synergies,

a loss of the shared services and

capabilities that SSE’s electricity-focused

business mix provides, and an impact

on culture. Significant disruption would

see cost and uncertainty to the business,

its people, partners and counterparties,

leading to project delays.

ENGAGEMENT IN ACTION

SHAREHOLDERS AND DEBT PROVIDERS

ENGAGING WITH SHAREHOLDERS

ON LONG-TERM PRIORITIES

The Board regularly monitors

shareholder views, market sentiment

and share price performance through

monthly updates from the Executive

Directors, the Company Secretary and

Director of Investor Relations, and via

feedback from shareholder meetings

which may have also been attended

by any member of the Board. This is

supported by the formal and separate

collation of market and investor data

from SSE’s brokers which is presented

to the Board at least twice a year.

Full details of the standing programme

of shareholder engagement is set out on

pages 135 to 136 , with shareholder

views providing a crucial backdrop to

the full range of Board deliberations.

To enhance monitoring of stakeholder

feedback and public commentary, the

Chair initiated a dedicated Shareholder

Engagement sub-Committee. The role

of this sub-Committee was to ensure

equitable understanding of

shareholders’ priorities relating to

the long-term shape of SSE, and to

deliver an increased speed of feedback

to the Board. The sub-Committee

met weekly outside of agreed Board

meetings, was led by the Chair of the

Board, and comprised at least 50%

independent membership.

Engagement methods which the

sub-Committee oversaw in this period

included the offer of meetings to SSE’s

largest shareholders – representing

around 40% of SSE’s issued share capital

– and proactive monitoring of the

normal communication channels which

remained open to all shareholders.

Some of the key insights which were

directly addressed in the Board’s

considerations are set out opposite.

In addition to its engagement role,

the sub-Committee monitored SSE’s

share register and assessed ongoing

disclosure obligations, with support

from SSE’s Group Disclosure

Committee, reviewing both the

internal information position and

external commentary across media

and analyst notes across the period to

November 2021.

To date, the sub-Committee has

remained in place, and intends to

meet as required to support an

enhanced frequency and co-ordination

of shareholder soundings on strategic

matters following announcement of the

Programme. The role and requirement

for the sub-Committee will remain

under review throughout the initial

phase of execution in 2022/23.

Identified shareholder priorities

• Long-term value creation

• Balance and stability of growth

options

• Transparency over funding and

capital allocation

• Clear investment proposition

NOV

129SSE plc Annual Report 2022

The Programme sets out quantifiable

deliverables to 2026 and is further

supported by a set of ambitious targets

to 2031. Together these represent

strategic outcomes underpinned by core

sustainability objectives, including the

renewal of SSE’s greenhouse gas emission

targets to align with a 1.5°C pathway as

approved by the Science Based Target

initiative. The result is a comprehensive

framework against which the Board can

monitor and incentivise progress with clear

criteria for Business Unit decision-making.

In line with this, reporting to the Board has

been re-aligned with the agreed ambitions

and timelines.

To support execution of the Programme,

a number of governance-based decisions

have been taken, and workstreams initiated,

which are covered in detail across respective

sections of the Annual Report. These

include:

• Board approval of revised 2030 Goals

(see page 130 ).

• Board approval of SSE’s Net Zero

Transition Plan (see page 130 ).

• Board support for SSE’s sustainable

investment criteria and Large

Capital Project Framework

(see page 133 ).

• Board approval of a revised

Employee Guide to SSE’s Strategy

(see page 138 ).

• Board oversight of SSE’s Just Transition

Strategy (see page 132 ).

• Nomination Committee review

of leadership, talent, succession,

inclusion and diversity, and culture

(see pages 145 to 151 ).

• Remuneration Committee review of

SSE’s Remuneration Policy including

performance-related metrics and

targets (see pages 136 and 168 to 171 ).

Governing strategic execution

NOV DEC JAN FEB MAR

• Energy affordability and customers

The Programme addresses the material

issue of energy customer affordability

through investment in indigenous,

low-carbon power sources and flexible

solutions that will help reduce reliance

on the imports which are driving the

current gas crisis. SSE’s customer

businesses, meanwhile, remain an

important route to market for, and

supplier of, low-carbon energy.

• Accelerating the net zero transition

The Programme would enable the

delivery of Government policy objectives

aligned to net zero, including: around

20% of the UK’s 50GW offshore wind

target by 2030; 20% of upcoming UK

electricity networks investment; and

critical options for the 20GW low-

carbon flexibility to ensure security of

supply by 2030, all of which are central

to decarbonisation of the power sector

by 2035.

• Projects society requires for net zero

Other scenarios, including ‘break-up’

or separation of some elements of

the Group, such as SSE’s renewables

business, would see loss of scale,

reduced capital structure and a weaker

credit position; negatively impacting the

ability to fund larger scale projects and

denying growth options across the value

chain, in areas such as carbon capture

and storage, hydrogen and distributed

energy solutions, amongst other

emerging technologies. These projects

are critical for society to transition to net

zero through enhanced renewables

deployment and system balancing.

• Suppliers, contractors and partners

Well-chosen equity partnering is a key

element of SSE’s strategy, with a proven

ability to spread project risk and financial

exposures, manage net debt, secure

developer premiums and benefit from

third party experience. This provides the

opportunity to accelerate SSE’s growth

plans and capture further opportunities

at home and abroad. By extending the

approach to SSE’s network businesses

through minority stake sales, the Group

optimises the investment in, and growth

from, market-based and economically

regulated businesses whilst fully funding

the investment and expecting an

investment grade credit rating to be

maintained. Meanwhile, the development

pipeline will continue to present

opportunities for local and national

suppliers, support competitive domestic

supply chains and support continued

engagement on cutting scope 3 activity.

130 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Board leadership and company purpose continued

Strategic review and Board focus in 2021/22 continued

What did the

Board consider? What did the Board discuss and approve? What were the material stakeholder considerations?

Seizing renewables

growth

Opportunities to support

the growth of SSE Renewables

and to a maintain a sustained

pipeline of development

opportunities.

• Parameters for participation in ScotWind, the

Crown Estate Scotland’s offshore wind seabed

leasing process.

• The rationale and approach to pursuing

international opportunities in Japan, Denmark,

North America and Southern Europe.

• Sale of a 10% equity stake and Final Investment

Decision for Dogger Bank C.

• Strategic proposition. To ensure an acceptable investment

case, the opportunities and risks of each project are assessed

across a range of criteria, including: fit with strategy;

geographic and market economics; policy and societal

context; revenue certainty and future return profile.

• Risk and portfolio diversification. Diversification across

geographies and technologies creates optionality, mitigates

development risk, and exploits existing in-house capabilities.

• Creating lasting value. A key commitment in the approach

to ScotWind was the delivery of local economic and social

benefit through supply chain, education and community

investment, in addition to supporting high carbon activities

transition across to the offshore wind sector.

• Synergistic partnering. SSE’s approach to partnering looks at

combining complementary skills, this includes matching SSE’s

development experience with local knowledge of business

and culture.

Powering communities

to net zero

The correct ambition and

strategic outcomes under SSEN

Distribution’s Business Plan for

the price control period from

2023 to 2028 (RIIO-ED2).

• The RIIO-ED2 Final Business Plan and proposal to

invest around £4bn, create 850 jobs, and ensure a

fair and just transition to net zero, with no proposed

increase in distribution costs on customer bills

across the price control period as part of the Plan.

• Stakeholder approach. The methodology used by SSEN

Distribution to co-create its business plan with stakeholders,

supported by evidence of how insights were shaping goals,

ambition and allowances across the phases of development.

• Addressing customer needs. The outputs and performance

levels to deliver on stated customer priorities, including

customer service, network reliability and inclusive support for

those who are vulnerable, whilst ensuring affordability for all.

• Delivering for net zero. The level of strategic investment

required to enable a smart, flexible and net zero energy system

which meets local needs and delivers long-term societal

benefit. This included the increased capacity required to

connect low carbon technologies such as electric vehicles

and heat pumps across the transport and heat sectors.

Supporting a successful

energy transition

The role of low-carbon

technology within SSE’s

generation portfolio and the

GB energy market, together

with the emerging policy

framework.

• The submission of the required information to

participate in the Government’s CCS cluster

sequencing process.

• The policy framework and proposed business

models to secure development of low carbon

infrastructure in industrial clusters.

• Strong strategic fit. The Government’s ambition and policy

framework through its cluster sequencing process, provides

a clear opportunity for SSE’s planned low-carbon thermal

projects at Keadby and Peterhead, which continue to leverage

SSE’s existing capabilities across the energy value chain. The

potential to repurpose existing assets in historically carbon-

intensive areas remains a strong fit with leading a just transition

and delivering socio-economic benefit.

• A deliberate energy mix. Flexible thermal generation remains

critical in the transition to net zero in an energy system which

increasingly comprises renewable sources. A balanced and

secure energy system that delivers for all end users requires

diversity, and firm generation can provide this by addressing

the intermittency of wind output.

Redefining 2030 Goals

A set of refreshed 2030

business goals against which

to monitor strategic progress,

with clear and continued

linkage to sustainable

outcomes, meeting the

strategic objective to create

value for both shareholders

and society.

• The continued alignment of SSE’s business

objectives with the UN Sustainable Development

Goals.

• Four new stretching business goals consistent

with the ambition of the Net Zero Acceleration

Programme.

• Full stakeholder benefit. The ability of SSE’s 2030 Goals to

deliver value for both shareholders and society; by driving

towards net zero at pace, and in a socially just way.

• Embedded in culture. Employees and Business Units continue

to embrace the 2030 Goals as a long-term vision and symbol

of SSE’s commitment to delivering social value through

business operations. The alignment to the UN Global Goals

framework influences the way SSE operates and the processes

it embeds, including SSE’s Sustainable Procurement Code and

the sustainable investment criteria for Large Capital Projects.

• Clear tracking of progress. Shareholders engage

constructively on SSE’s 2030 Goals, citing the importance of

quantifiable criteria and meaningful linkage including when

considering remuneration metrics. A key consideration was

therefore how to strengthen their impact in line with the next

phase of SSE’s growth.

A Net Zero

Transition Plan

A Net Zero Transition Plan, in

line with commitments made

in July 2021, to enable SSE’s

shareholders to vote on its first

Net Zero Transition Report in

July 2022.

• The clarity of targets and actions contained in

the Net Zero Transition Plan, and governance

arrangements to ensure ongoing Board oversight.

• SSE’s explicit stated ambition to achieve net zero

emissions for scopes 1 and 2 by 2040, the detail

on how it might achieve it and the significance of

security of supply considerations.

• Alignment and expectations. The pathways identified by

the International Energy Agency and the UK Government

for when the power sector generally should reach net zero,

and the influence this will have on stakeholders seeking

clarity surrounding how SSE intends to move towards

achieving its net zero ambitions in both 2035 and 2040.

• Societal backdrop and context. The energy affordability

crisis and the importance of explaining how the transition

to net zero can make a value for money contribution to

long-term energy affordability.

Approval of

ScotWind bidding

approach

Preliminary Results

2020/21

Approval of Japan

offshore wind

opportunity

Approval of CCS

cluster sequencing

process

participation

Approval of

RIIO-ED2 Draft

Business Plan

AGM 2021

Approval to

progress sale of

an equity stake in

Dogger Bank C

Approval of the final

investment decision

in Dogger Bank C

APRIL 2021 MAY JUNE JULY AUGUST SEPTEMBER

Overseeing strategic delivery

131SSE plc Annual Report 2022

2030 Goals

Cut carbon

intensity by 80%

Champion a fair and

just energy transition

Increase renewable

energy output fivefold

Enable low-carbon

generation and

demand

What did the

Board consider? What did the Board discuss and approve? What were the material stakeholder considerations?

Seizing renewables

growth

Opportunities to support

the growth of SSE Renewables

and to a maintain a sustained

pipeline of development

opportunities.

• Parameters for participation in ScotWind, the

Crown Estate Scotland’s offshore wind seabed

leasing process.

• The rationale and approach to pursuing

international opportunities in Japan, Denmark,

North America and Southern Europe.

• Sale of a 10% equity stake and Final Investment

Decision for Dogger Bank C.

• Strategic proposition. To ensure an acceptable investment

case, the opportunities and risks of each project are assessed

across a range of criteria, including: fit with strategy;

geographic and market economics; policy and societal

context; revenue certainty and future return profile.

• Risk and portfolio diversification. Diversification across

geographies and technologies creates optionality, mitigates

development risk, and exploits existing in-house capabilities.

• Creating lasting value. A key commitment in the approach

to ScotWind was the delivery of local economic and social

benefit through supply chain, education and community

investment, in addition to supporting high carbon activities

transition across to the offshore wind sector.

• Synergistic partnering. SSE’s approach to partnering looks at

combining complementary skills, this includes matching SSE’s

development experience with local knowledge of business

and culture.

Powering communities

to net zero

The correct ambition and

strategic outcomes under SSEN

Distribution’s Business Plan for

the price control period from

2023 to 2028 (RIIO-ED2).

• The RIIO-ED2 Final Business Plan and proposal to

invest around £4bn, create 850 jobs, and ensure a

fair and just transition to net zero, with no proposed

increase in distribution costs on customer bills

across the price control period as part of the Plan.

• Stakeholder approach. The methodology used by SSEN

Distribution to co-create its business plan with stakeholders,

supported by evidence of how insights were shaping goals,

ambition and allowances across the phases of development.

• Addressing customer needs. The outputs and performance

levels to deliver on stated customer priorities, including

customer service, network reliability and inclusive support for

those who are vulnerable, whilst ensuring affordability for all.

• Delivering for net zero. The level of strategic investment

required to enable a smart, flexible and net zero energy system

which meets local needs and delivers long-term societal

benefit. This included the increased capacity required to

connect low carbon technologies such as electric vehicles

and heat pumps across the transport and heat sectors.

Supporting a successful

energy transition

The role of low-carbon

technology within SSE’s

generation portfolio and the

GB energy market, together

with the emerging policy

framework.

• The submission of the required information to

participate in the Government’s CCS cluster

sequencing process.

• The policy framework and proposed business

models to secure development of low carbon

infrastructure in industrial clusters.

• Strong strategic fit. The Government’s ambition and policy

framework through its cluster sequencing process, provides

a clear opportunity for SSE’s planned low-carbon thermal

projects at Keadby and Peterhead, which continue to leverage

SSE’s existing capabilities across the energy value chain. The

potential to repurpose existing assets in historically carbon-

intensive areas remains a strong fit with leading a just transition

and delivering socio-economic benefit.

• A deliberate energy mix. Flexible thermal generation remains

critical in the transition to net zero in an energy system which

increasingly comprises renewable sources. A balanced and

secure energy system that delivers for all end users requires

diversity, and firm generation can provide this by addressing

the intermittency of wind output.

Redefining 2030 Goals

A set of refreshed 2030

business goals against which

to monitor strategic progress,

with clear and continued

linkage to sustainable

outcomes, meeting the

strategic objective to create

value for both shareholders

and society.

• The continued alignment of SSE’s business

objectives with the UN Sustainable Development

Goals.

• Four new stretching business goals consistent

with the ambition of the Net Zero Acceleration

Programme.

• Full stakeholder benefit. The ability of SSE’s 2030 Goals to

deliver value for both shareholders and society; by driving

towards net zero at pace, and in a socially just way.

• Embedded in culture. Employees and Business Units continue

to embrace the 2030 Goals as a long-term vision and symbol

of SSE’s commitment to delivering social value through

business operations. The alignment to the UN Global Goals

framework influences the way SSE operates and the processes

it embeds, including SSE’s Sustainable Procurement Code and

the sustainable investment criteria for Large Capital Projects.

• Clear tracking of progress. Shareholders engage

constructively on SSE’s 2030 Goals, citing the importance of

quantifiable criteria and meaningful linkage including when

considering remuneration metrics. A key consideration was

therefore how to strengthen their impact in line with the next

phase of SSE’s growth.

A Net Zero

Transition Plan

A Net Zero Transition Plan, in

line with commitments made

in July 2021, to enable SSE’s

shareholders to vote on its first

Net Zero Transition Report in

July 2022.

• The clarity of targets and actions contained in

the Net Zero Transition Plan, and governance

arrangements to ensure ongoing Board oversight.

• SSE’s explicit stated ambition to achieve net zero

emissions for scopes 1 and 2 by 2040, the detail

on how it might achieve it and the significance of

security of supply considerations.

• Alignment and expectations. The pathways identified by

the International Energy Agency and the UK Government

for when the power sector generally should reach net zero,

and the influence this will have on stakeholders seeking

clarity surrounding how SSE intends to move towards

achieving its net zero ambitions in both 2035 and 2040.

• Societal backdrop and context. The energy affordability

crisis and the importance of explaining how the transition

to net zero can make a value for money contribution to

long-term energy affordability.

OCTOBER NOVEMBER DECEMBER JANUARY 2022 FEBRUARY MARCH APRIL 2022

Approval of bid

submission in

Thor offshore

tender

Approval of Net

Zero Acceleration

Programme

Approval of

RIIO-ED2 Final

Business Plan

Half-year Results

2021/22

Approval of

2030 Goals

Approval of

New York Bight

bid submission

Approval of Net

Zero Transition

Plan

Approval of

Southern

Europe

renewables

opportunity

More on pages 32 to 39 

SSE’s six key stakeholder groups

132 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Strategy and performance

Safety, health and environment (SHE)

• Considered the application of SSE’s safety value in developing

the correct coronavirus protocols, support, and advice to

ensure a safe working environment for all employees.

• Reviewed key indicators of SHE performance and initiatives to

maintain focus on SHE culture, including a reset of SSE’s 2022+

vision ‘Home Safe’.

• Identified learnings from the operating context, including the

front-line challenges of working in storms and the importance

of continued focus on wellbeing and mental health.

SSE’s Business Units

• Monitored Business Unit performance and strategic ambition

through presentations from business leadership teams, and

standing updates from the Executive Directors (see pages 124

to 125 ).

• Appraised the digital priorities proposed by each Business Unit

and SSE’s Group Services to ensure continued development of

future capability and delivery of service for SSE’s customers.

• Monitored business compliance performance in line with

applicable legislative and regulatory frameworks and received

updates on relevant inquiries.

• Reviewed network performance and SSEN’s operational

response during extreme weather events, including faults,

engineering response, stakeholder communication and

community support.

Operating context

• Received regular updates on commodity markets and

counterparty positions; reviewing SSE’s exposures and

the continued governance discharged by the EMRC.

• Interrogated SSE’s engagement plans as part of its role as

Principal Partner of COP26, including its work with KPMG

on the Hindsight is 2050 Vision report.

• Monitored developments in policy and the political landscape

considering the impact on SSE’s operations, long-term strategy

and its key stakeholder groups; approving advocacy priorities

that address energy market flexibility, security and affordability,

and provide a resilient pathway to developing, building and

connecting the infrastructure needed for net zero.

• Received a dedicated update on weather, covering: the observed

events of 2021/22; the latest short-term forecast; climate change

attribution studies; and analysis of warming scenarios, against the

backdrop of SSE’s asset performance and strategic plans.

• Reviewed the CMA’s final determinations in SSEN Transmission’s

appeal against certain elements of Ofgem’s RIIO-T2 price

control settlement.

Sustainability

• Approved priorities to support sustainable business operations

and decision-making across SSE including: accelerating SSE’s

science-based greenhouse gas emission targets; publication of

a Net Zero Transition Plan; and the revision of SSE’s 2030 Goals

(see pages 130 to 131 ).

• Approved the focus and work undertaken to support a just

transition to net zero, concentrating initially on the experience of

working people transitioning from high to low carbon careers.

• Reviewed SSE’s approach to reducing the risk of human rights

abuse in its business and supply chain, approving SSE’s Modern

Slavery Statement, and continuous improvement plan co-

developed with independent experts Stronger Together.

• Reviewed, clarified and monitored the governance pathways for

all identified environmental, social and governance (ESG) topics

assessed by ESG ratings providers.

SSE’s key stakeholders

More on page 134 

Financial management

Financial performance

• Monitored the financial performance of each Business Unit, and

the Group, judging variance against budget and reviewing the

latest financial forecast against analyst consensus and market

guidance, approving updated EPS guidance as required.

• Approved and recommended half and full-year dividends

of 25.5p and 60.2p respectively for 2021/22.

Capital investment

• Assessed capital expenditure and investment against strategic

plans using revised project reporting and delivery indicators.

• Approved revised parameters for project investment case analysis.

Financial planning and funding

• Approved the 2022/23 budget which reflected strategic growth,

large capital project plans and job creation; and reviewed the

long-term financial model following updates to assumptions

and outputs, in line with progress delivered and changes in SSE’s

external operating context.

• Reviewed net debt and Audit Committee funding work and oversaw

the annual ratings review process in support of maintaining a strong

balance sheet and investment grade credit ratings.

• Confirmed the funding and management of SSE’s pension schemes.

Governing SSE for

long-term success

Board leadership and company purpose continued

Supporting the work on long-term strategic direction, agenda focus areas have

comprised the matters required to ensure effective performance and governance

of SSE. These topics are diverse and draw on the schedule of reserved matters,

SSE’s culture and values and the immediate operating context.

133SSE plc Annual Report 2022

Risk and internal control

Coronavirus resilience

• Evaluated SSE’s resilience to the coronavirus pandemic across

people, business operations and financial position, assessing

the command structure which supported agile response plans.

• Endorsed lessons learned and testing of high consequence

crisis management scenarios against business continuity plans.

Risks, viability and internal controls

• Reviewed and approved the methodology and findings of the

Group Principal Risk and emerging risk assessment supporting

SSE’s Risk Appetite and risk disclosures (see pages 68 to 81 ).

• Confirmed the output of the assessment which forms the basis

of SSE’s Viability Statement (see pages 70 and 156 ).

• Confirmed the ongoing effectiveness of SSE’s System of Internal

Control (see page 161 ).

• Evaluated the external cyber security context alongside SSE’s

cyber risk appetite, security culture and strategy.

• Affirmed SSE’s data privacy programme through review of GDPR

metrics, controls and risk management maturity.

Large capital projects

• Reviewed the outcome of, and contributed to, an independent

review of SSE’s Large Capital Projects Governance Framework

to support the continued safe and timely execution of approved

project plans, sustainable outcomes and delivery of shareholder

value.

Governance

Shareholder communications

• Approved the contents of 2021/22 trading statements, Half-year

Results, the Annual Report and Accounts, and supporting

regulatory announcements; considering feedback from the

Audit Committee on significant judgements, fair, balanced and

understandable, and the going concern basis of preparation to

ensure integrity of reporting.

• Approved the notice and business of the Annual General Meeting

2022 including resolutions relating to SSE’s Remuneration Policy

and Net Zero Transition Report, endorsing a hybrid meeting to

support shareholder participation.

Board and Board Committees

• Monitored Nomination Committee work on Board composition,

succession planning and wider capability, approving, subject

to ongoing shareholder approval: the appointment of Dame

Elish Angiolini, Debbie Crosbie and John Bason as new

non-Executive Directors; the re-appointment of Melanie Smith

and Helen Mahy for a further three-year period; and the

extension of Dame Sue Bruce’s tenure to 31 March 2023.

• Approved updates to Board Committee membership and the

succession plan for Non-Executive Director for Employee

Engagement and Remuneration Committee Chair.

• Approved the enhanced role of the SSHEAC surrounding

sustainability governance (see page 166 ).

• Approved updates to SSE’s Board Inclusion and Diversity Policy

(see pages 150 to 151 ).

• Reviewed the findings of the external evaluation of Board

performance (see pages 143 to 144 ).

External developments

• Reviewed current and future governance developments

and supported SSE’s consultation responses on audit and

corporate governance reform and listing rule updates

surrounding inclusion and diversity reporting.

People and culture

Wider workforce remuneration

• Received updates from the Non-Executive Director for

Employee Engagement and Chief Commercial Officer on

constructive dialogue with trade unions on the approach to

employee pay.

Ways of working

• Supported the strategy for future ways of working including

locational flexibility to match employees’ needs, and

communications to maintain engagement and culture.

Doing the right thing

• Approved updates to SSE’s employee resource ‘Doing the Right

Thing; SSE’s guide to good business ethics’ to reflect flexible

working practices, the role of people leaders in embedding

ethical behaviour, and to simplify messaging surrounding

support channels including speak up and aftercare protocols.

• Reviewed employee sentiment on willingness to report unethical

behaviour, engagement in whistleblowing arrangements, incident

trends including the impact of remote working on case numbers,

and future focus areas; assessing and confirming the continued

effectiveness of SSE’s whistleblowing arrangements.

Employee views and engagement

More on pages 140 to 141 

Climate on the Board’s agenda

SSE’s purpose, vision and strategy are fully aligned with net

zero; supporting the delivery of low-carbon infrastructure

and the energy solutions required for an orderly net zero

transition. The physical and transitional risks and

opportunities to SSE, associated with climate change,

is therefore not a singular agenda item. Climate is a topic

embedded across all areas of Board work.

Long-term considerations, including those trends within the

operating context that have the potential to influence strategic

direction, and affect the views and needs of stakeholders,

are all couched in the possible pathways to net zero.

This includes changes in policy frameworks and energy

regulation; how commodity markets may react within a

changing energy mix; the impact of climate change on

weather; the role of innovation and technology within SSE’s

asset base and in changes to customer behaviour; and

investor views of SSE’s investments and business model.

In turn, the framework set by the Board based on its view

of these climate-related issues, includes strategic targets,

business goals, the approved budget, net zero consistent

investment criteria, risk-based parameters including SSE’s Risk

Appetite, and SSE’s approach to stakeholder engagement.

These represent just a few of the areas which are evidenced

across pages 126 to 133 .

134 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Our culture

See pages 140 to 141 .

Employees Shareholders

and debt providers

Energy

customers

Government

and regulators

NGOs, communities

and civil society

Suppliers,

contractors and

partners

Stakeholder views

Considered

decision-making

Framework represents the backdrop for

this, with the Board confirming ambitions,

key parameters and expectations to drive

long-term success. These include SSE’s

purpose, vision, strategy and culture and

the approach to reflecting stakeholder

views within long-term plans and day-to-

day operations.

Decision-making context

Engaging with stakeholders

The Board sets the framework within which

stakeholder relations are developed and

maintained, establishing why SSE interacts

with its stakeholders and how views should

be considered at both a Business Unit and

Group level. The identification of SSE’s key

stakeholder groups and the purpose of

stakeholder engagement are therefore

Board-approved principles, which are

explained on pages 32 to 33 .

To ensure meaningful reflection of

stakeholder views across SSE’s operations

and actions, breadth and depth of

stakeholder engagement is required.

The Board is supported in the scale of

this activity by a network of mature

executive and business-led stakeholder

contacts, with oversight and understanding

of views achieved through both direct

engagement and reporting of below-Board

activity. This allows the timely recognition

of emerging stakeholder issues, with

Board engagement complementing the

expectation that senior leadership and

SSE’s Business Units take demonstrable

account of stakeholder opinion in their

decisions and longer-term objectives.

Addressing stakeholder priorities

Reflective of SSE’s approach, the response

to stakeholder priorities across business

plans and within Board work is represented

across the Annual Report. In the context

of the Board-level principal decisions

on pages 126 to 131, 150 and 169 ,

insight is provided surrounding the

material stakeholder factors which shaped

deliberations. Totemic issues with multi-

stakeholder impact, such as the climate

emergency, coronavirus pandemic, energy

affordability and security of supply remain a

backdrop to all Board work.

Looking ahead, the delivery of SSE’s Net

Zero Acceleration Programme will provide

a focal point for stakeholder engagement

across 2022/23, and will be supplemented

by the following Board-identified priorities.

• Advocacy on energy system design to

future proof a net zero transition that

supports customers’ needs.

• Two-way dialogue with employees

on their role within SSE and net zero,

and support for SSE’s IN, ON and UP

inclusion and diversity strategy.

• Active engagement with all stakeholders

on SSE’s view of a fair and just transition.

• Diversity of opinion and challenge on

SSE’s long-term strategic direction and

approach to environmental, social and

governance matters, through external

soundings.

Working for stakeholders

More on pages 32 to 39 

The Board has an ultimate duty to lead

by example and set the correct tone to

ensure decisions within SSE are taken in a

responsible and fair way. SSE’s Governance

Board leadership and company purpose continued

Our purpose

To provide energy needed today,

while building a better world of

energy for tomorrow.

Our vision

To be a leading energy company

in a net zero world.

Our strategy

To create value for shareholders

and society in a sustainable way

by developing, building, operating

and investing in the electricity

infrastructure and businesses

needed in the transition to net zero.

135SSE plc Annual Report 2022

APR ‘21 MAY JUN JUL AUG SEP OCT NOV DEC JAN ‘22 FEB MAR

Full-year Results

Roadshow

Engagement

on long-term

strategy

Remuneration

Policy

engagement

Half-year Results and

Strategy Roadshow

Shareholder and

debt providers

Gathering views

The Board engages with equity and

debt investors to help inform strategic

decision making, communicate SSE’s

sustainable business plans, and report on

environmental, social and governance (ESG)

and financial performance. Engagement

by the executive team is led by the Chief

Executive and Finance Director with

participation from the Chief Commercial

Officer and other members of the Group

Executive Committee, and focuses on

financial and business performance in

executing SSE’s strategy. Engagement by

the Chair leads on corporate governance,

strategy development and people, with

support from the non-Executive Directors.

Open and regular dialogue remains

the foundation to the Board’s approach,

with managed communication channels

in place for all to use (see page 355 ). In

addition, the Board, executive management

and the Investor Relations team proactively

engage with investors through an annual

programme of activity, and ongoing

communication with analysts, proxy

advisors, ESG ratings agencies and financial

ratings agencies helps improve disclosure

and allow stakeholders to better assess

SSE’s performance.

Institutional investors

Collectively, in 2021/22, the Board

engaged directly with institutional investors

representing over 40% of issued share

capital. The programme of engagement –

which encompassed 153 one-to-one

sessions with investors – was mainly

focused across three periods: the Full-year

Results Roadshow; the period ahead of the

Net Zero Acceleration Programme; and the

Half-year Results and Strategy Roadshow

thereafter. In addition to dedicated

engagement surrounding long-term

strategic direction (see page 128 ),

specific feedback was sought on the

proposed Remuneration Policy, and

following appointment as Chair, Sir John

Manzoni proactively engaged with many

of SSE’s largest shareholders to establish

a first-hand understanding of priorities

and views on corporate governance.

Supplementing one-to-one engagement,

the Executive Directors attended 15 industry

conferences, mainly virtual, and held 23

group meetings which were attended

by a number of shareholders and

prospective investors.

Retail shareholders

To allow management of an individual’s

shareholding, SSE’s investor website

provides a source of equivalent

information, housing all regulatory news

announcements and published financial

and non-financial reports. The Investor

Relations team and the Company

Secretariat, with support from SSE’s

Registrar, engage directly with retail

shareholders in response to private

shareholding queries.

Annual General Meeting (AGM)

The Board encourages shareholders

to participate in the AGM, and through

shareholder approval, has introduced

the necessary measures to hold a hybrid

meeting in 2022. These arrangements

allow full remote participation, with details

of the business of the meeting and how

to attend both in person and virtually

set out in the separately issued Notice of

AGM 2022. With all Directors available to

respond to enquiries, questions are invited

to be submitted both on the day and in

advance. Answers to questions and the

results of the meeting are published on

sse.com  as soon as practicable after

the event. In 2021, all resolutions were

passed with in excess of 94.87% votes

cast in favour.

Debt investors

Engagement with solicited credit ratings

agencies, being Standard & Poors’ and

Moody’s, takes place throughout the

course of the year, with increased dialogue

ahead of the annual ratings review process

and in line with Company related news

flows. Regular dialogue is also maintained

between key relationship banks, debt

investors and SSE’s Treasury team and

the Finance Director.

CYCLE OF SHAREHOLDER ACTIVITY 2021/22

Number of shareholder meetings

Main focus of meetings

136 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Board leadership and company purpose continued

Considered decision-making continued

Sharing and interpreting feedback

The Board receives monthly updates on

investor and financial market sentiment,

providing insight into recent share price

movements; a briefing on recent sell-side

analyst commentary; and key monthly

movements in the share register. This is

covered through written reports and verbal

feedback from meetings which have

taken place.

ENGAGEMENT IN ACTION

SHAREHOLDERS AND DEBT PROVIDERS

SHAPING REMUNERATION POLICY

SSE’s Remuneration Policy is subject

to a three-yearly binding vote from

shareholders, with it last approved

at the 2019 AGM.

In February 2022, the Chair of the

Remuneration Committee wrote

to SSE’s top 30 shareholders on

the Register, as well as several

advisory agencies. This set out that

the Remuneration Committee was

seeking to use the upcoming review

cycle to further strengthen and align

its approach to executive pay with

SSE’s purpose and long-term strategy,

as directly supported by the Net Zero

Acceleration Programme. The letter

resulted in a number of written

responses as well as virtual meetings

where views on the policy proposals

were shared and discussed.

Shareholder responses were considered

at the Remuneration Committee

meeting at the end of March, and with

agreement of the Committee, a further

letter was sent to shareholders at the

end of April. This reported the feedback

which had been received to date and

provided a summary of its response

to the common themes raised.

Following approval at the

Remuneration Committee meeting

in May, this engagement with

shareholders contributed to: a change

to the proposed split of performance

measures for the Performance Share

Plan – with more being financial than

originally proposed; and a focus on

the importance of stretching targets,

with a suitable mix of quantitative and

qualitative measures.

Furthermore, the engagement

allowed the Remuneration Committee

Chair to reassure shareholders that the

proposed change to Policy wording

does not represent a change in the

current approach to pay, but provides

greater flexibility for the future, with

Executive Directors’ salaries increasing

by 3% with effect from 1 April 2022 in

line with the negotiated pay increase for

all employees.

The feedback provided by shareholders

during and after Half and Full-year Results

Roadshows is communicated directly to

the full Board in a biannual shareholder

feedback paper including updates from

SSE’s brokers.

The Board, through the SSHEAC, receives

a full annual review of SSE’s performance

in investor-led ESG reviews and ratings.

Key matters raised by shareholders during

the period, considered across Board

deliberations are set out on page 35 .

137SSE plc Annual Report 2022

How the Board engages

The two-way dialogue between the

Board and employees is facilitated by a

combination of engagement methods,

including face-to-face discussions at

meetings, during site visits and through

attendance at employee events. During the

coronavirus pandemic, where in-person

meetings were not possible, engagement

was enabled through virtual platforms

to ensure continued contact with the

employee voice.

These tools complemented the established

annual all-employee survey and the Board’s

review of findings, and remain in place.

Across 2021/22, as coronavirus restrictions

began to lift and when it was deemed safe

to do so, the Board took the opportunity

to reconnect in person, continuing to build

on what had been achieved during periods

of lockdown in maintaining engagement

with employees.

The adoption of a diverse range of listening

channels has been based on the principle

that everyone in SSE should have a voice,

and is consistent with employee feedback

surrounding the benefit of multiple

platforms through which to raise areas of

interest or concern. In turn, it supports the

Board in gathering a fair and representative

view of the issues which are important to

employees, and builds an appreciation of

how these may differ by business area, role

and geography.

Supporting and listening

to the employee voice

Board-led virtual

engagement

sessions

Total employee

attendance at

Board calls

22,068

Largest audience

size

4,369

Non-Executive

Director for

Employee

Engagement

sessions

Sites visited

All-employee

survey

engagement

score 2020/21

82%

Engagement highlights

Board listening approach

Engagement settings

All-employee setting

Offers a Board perspective which can

otherwise be missed from business-

led communications, and provides

the Board with insight of employee

opinion on life at SSE.

People leaders

Provides the opportunity to replay

key messages which have been

heard through listening channels,

and supports and challenges

management actions and response.

Senior leadership

Creates a platform for two-way

interaction between senior leaders

and the Board through which the

Board can offer views and personal

external perspectives.

Engagement methods

Director-employee sessions

Provides employees with Board

accessibility and direct two-way

interaction, supporting detailed

discussion of specific topics.

Focus groups

Allows interaction with diverse

geographies and cross-sections of

employees, and being smaller in size,

provides the opportunity to seek out

added context surrounding employee

sentiment through true conversation.

The impact can be fast and influence

decisions which may affect employees.

All-employee surveys

Exists as a long-standing tool with a

mature strategy that attracts a strong

response rate. The results are viewed

as representative of the majority of

employee voices, and the question set

and findings shape the cultural agenda,

ensuring that employee sentiment is

considered in all key decision making.

Site visits by non-Executive Directors

Allows non-Executive Directors to

travel across parts of SSE and feel the

operational environment, enhancing

understanding of employees’ experience

of their working environment. Site visits

can be followed by informal roundtables

to allow deeper two-way dialogue on

matters of importance.

Blogs and written communications

Reinforces matters of importance and

embeds the tone through the Board’s

written reflections.

Non-Executive Director for

Employee Engagement

More on page 139 

138 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Key themes 2021/22 Active Board engagement

Strategy, net zero and

climate change

Why the Board engaged

The Board acts in response to

all-employee survey and call

feedback, which cited a want to

engage further with senior leaders

on SSE’s strategy and the drive to

net zero.

• All-employee Climate Academy virtual calls, were hosted by the Chief Executive and the

Chief Commercial Director. These were a key component of supporting COP26 activity and

a direct result of employees’ desire to understand SSE’s net zero strategy in broader terms.

• The Chief Executive hosted employee engagement sessions with external experts including

Chris Stark, Chief Executive of the Climate Change Committee and John Sauven, Executive

Director of Greenpeace.

• In line with SSE’s Net Zero Acceleration Programme, the Board approved an updated

Employee Guide to Strategy, which was supported by the Chief Executive and Finance

Director hosting a virtual people leaders session on SSE’s growth ambitions.

• The Non-Executive Director for Employee Engagement attended a COP26 employee event

hosted by SSE Distributed Energy, meeting with employees and many of SSE’s Climate

Pledge Team Captains who were advocating all-employee net zero commitments.

• The Chair of the SSHEAC judged SSE’s graduate sustainability awards.

• The Non-Executive Director for Employee Engagement attended SSE Thermal Town Halls

where employees discussed all-employee survey findings alongside the important role of

the business in supporting SSE achieve its net zero ambitions.

Inclusion and diversity

Why the Board engaged

The Board champions SSE’s

inclusion and diversity approach,

and seeks broad insight

surrounding the effectiveness of

plans and initiatives in order to

continually further progress.

• The Executive Directors and Melanie Smith hosted an all-employee call discussing inclusion

and diversity and how SSE is taking actions to support progress.

• The Non-Executive Director for Employee Engagement met virtually with the heads of the

‘Belonging in SSE’ employee-led groups, which provide representation to, and champion

discussion of: Menopause; Health and Wellbeing; Disability; Neurodiversity and Chronic

Health; Black and Ethnic Minority; and Armed Forces. Priority areas which topped both the

agenda and discussion were mental health and ‘making the uncomfortable comfortable’.

• The Chair of the SSHEAC visited the Tealing Transmission Substation Upgrade to discuss

inclusion and diversity and opportunities across technical roles, meeting with female

engineers and gathering reflections of working for SSE and in a construction environment.

• The Chair and the Senior Independent Director met with Transmission and Distribution

colleagues following a site visit and took time to understand their views on inclusion and

diversity across SSE.

Great place to work

and ways of working

Why the Board engaged

The Board seeks views of

employee needs in order to drive

culture and meet expectations

surrounding working practices;

areas which were in sharp focus

across the coronavirus pandemic.

• The Non-Executive Director for Employee Engagement presented virtually on the

outcomes of the all-employee survey to people leaders, identifying clear accountabilities

specific to that group.

• The Non-Executive Director of Employee Engagement met with colleagues in Airtricity,

Ireland, to discuss the outcomes and action plans in response to the all-employee survey

and understand sentiment around ways of working and returning to the office.

• An additional targeted survey was issued to all employees during the year to gather

feedback and cultural trends on ways of working, which informed the Board’s view

of the flexible practices required to support employees and ensure inclusivity.

Frontline operations

Why the Board engaged

The Board wants to ensure

operational roles feel connected

with SSE’s engagement approach

by listening directly to employees

in the field.

• During the coronavirus pandemic a number of staff continued to maintain frontline

operations due to the nature of their roles. In December 2021, the Chair and Chief

Executive visited those working in the Perth Control Room, whilst they were dealing

with the impact of Storm Arwen.

• Non-Executive Director site visits took place at the Alyth Transmission construction site,

the Tealing Transmission Substation upgrade and the New Forest Depot with key takeaways

being the care taken by frontline staff to preserve the local environment and wildlife whilst

carrying out operations.

Board response in 2021/22

SSE has continued to use technology together with in person meetings to allow large scale conversations to continue across

Great Britain and Ireland. Discussions have been broad ranging and responsive to the changing status of the pandemic throughout

the year, with focus on the specific topics outlined below.

Board leadership and company purpose continued

Supporting and listening to the employee voice continued

139SSE plc Annual Report 2022

Non-Executive Director for

Employee Engagement

The Nomination Committee oversees

the recommended appointment of the

Non-Executive Director for Employee

Engagement, a role which Dame Sue Bruce

has held since its inception in 2018. In the

Nomination Committee’s considerations,

recognition was given to Dame Sue’s depth

of experience, active listening skills and

empathetic approach. It was further

NON-EXECUTIVE DIRECTOR

FOR EMPLOYEE ENGAGEMENT

I have been hugely grateful of the

opportunity to re-connect with

colleagues in person after the unique

challenges which coronavirus presented

across 2020/21. Recognising that virtual

platforms provided an inclusive means

of ‘travelling’ to different locations,

we have retained a hybrid approach to

engagement, delivering a more rounded

and flexible means of keeping in touch

with employee sentiment.

Work across the year has continued to

support constructive engagement on

employee survey results and business-

led action plans – which saw a session

with Airtricity colleagues in Ireland and

a virtual employee-wide call; alongside

new thought provoking sessions with

the leads of Belonging in SSE Groups,

which will be a biannual occurrence

going forward. The essence of engaging,

listening and sharing lived experiences

cannot be captured through measured

survey responses alone, and direct

insights from colleagues is an invaluable

way of deepening Board understanding

of how our people feel.

Our dialogue remains two way and

questions are always invited on

Board-led developments. With SSE’s

strategy dependant on the collective

skills of its diverse workforce I was able

to share Board views in the lead up

to COP26, meeting with Distributed

Energy team members in Perth and

attending virtual Thermal Town Hall

sessions. A consistent observation is

the personal commitment to SSE’s

purpose, and colleagues should

continue to recognise the contribution

they make to SSE’s net zero ambitions.

From my constructive engagements,

notable priorities which have been

identified to support future work,

and which have been reported to

the Board, are:

• A continued pledge to support

colleague wellbeing, with a particular

focus on mental health for frontline

workers.

• Confidence in levels of employee

support as society continues to

adapt to the evolving coronavirus

pandemic.

• Focus on the value of SSE’s ‘Flexible

First’ working approach as a core

enabler of employee engagement.

• A retained central focus on safety.

Meetings with trade union FTOs and

JNCC colleagues, at least twice each

year, have also continued, building on

the foundations of a well-established

relationship and supporting the formal

industrial relations activities led by the

executive team. This relationship is

underpinned by openness, inclusivity

and transparency whilst respecting our

respective roles, allowing diverse views

to be heard by the Board, in a pro-active

and timely way. The collaborative role

of Group HR ensures that responsive

business-led action can be channelled

directly to senior leaders and informs

the overall engagement approach.

I would like to reiterate the Board’s

pride in the continued achievements

of our employees, and the strength

of culture which is evident across

our engagements.

Dame Sue Bruce

Non-Executive Director for

Employee Engagement

ENGAGEMENT IN ACTION

EMPLOYEES

“ During our call Sue was inspirational and courageous,

speaking very openly about the challenges she has faced.

At SSE we encourage personal stories in striving to make

the uncomfortable comfortable. Board engagement on

this supports an inclusive workplace where diversity is

valued and everyone can thrive.”

Vikki Mohammed

Neurodiversity and Chronic Health, Belonging in SSE Lead

recognised that as Remuneration

Committee Chair, relevant employee

perspectives could be understood in

the context of wider remuneration policy

and the approach to reward.

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

understanding of employee sentiment.

Each year, the programme of work for

the Non-Executive Director for Employee

Engagement is structured and supported

in collaboration with SSE’s Group HR

Employee Engagement Manager. The

success of the role is measured in action,

whereby the employee voice is consistently

represented in meetings attended by the

Non-Executive Director for Employee

Engagement, allowing the views and

opinions of colleagues to feature and

contribute to discussions and decisions

being made.

140 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Board leadership and company purpose continued

Aligning with purpose,

vision and strategy

Company culture has internal and external

influence; guiding interactions within SSE

and directing decisions with stakeholder

impact. This context is reflected within the

Board-approved definition of a healthy

corporate culture, which supports purpose,

vision, strategy and long-term success, by

setting a baseline against which cultural

guidance can be developed and cultural

indicators tested.

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 and engaging; that

encourages employees to make a

positive difference for stakeholders;

in which values guide decisions and

actions; and in which attitudes and

behaviours are consistent with high

standards of conduct and doing the

right thing.

Setting the tone

A healthy corporate culture is a shared

deliverable, which starts with the Board

setting the correct tone. This is supported

through approval of SSE’s values, and their

translation into accepted attitudes and

Focusing on culture

behaviours within SSE’s Group Policies and

an employee guide ‘Doing the Right Thing;

SSE’s guide to good business ethics’, all of

which are supported by mandatory training

for everyone in SSE.

Leading by example is through the

Board’s own conduct and communication

to employees of key Board activity.

Senior leaders across SSE have the same

responsibility to lead, embed and oversee

cultural standards.

Culture is embedded at Board-level by:

• SSE’s Governance Framework and

practices (see pages 124 to 125 ).

• Board decision-making (see pages 126

to 133 ).

• People matters, appointments and

succession planning (see Nomination

Committee Report ).

• SSE’s risk, controls and compliance

approach (see Audit Committee and

EMRC Reports and page 68 ).

• Focus on safety, sustainability, health

and the environment (see SSHEAC

Report ).

• Attitudes towards reward and

remuneration (see Remuneration

Committee Report ).

Monitoring and measuring

The Board uses multiple sources to assess

the strength of culture and understand how

it manifests across employee sentiment,

observed behaviours and trends. These can

be described as a combination of the below

reported metrics, standing reports and

listening channels.

• Feedback from Board-employee

engagement.

• Non-Executive Director for Employee

Engagement insights.

• Employee survey results.

• Twice yearly Cultural Dashboard review.

• Monthly people updates from the Chief

Executive covering key developments

and employee sentiment.

• Monthly compliance reporting from the

Finance Director.

• Monthly safety and employee wellbeing

data.

• Whistleblowing performance reports.

• SSE’s Principal Risk ‘People and Culture’.

The Cultural Dashboard remains a health

check, comprising data from Group HR

and Group Compliance. A key section,

which is illustrated opposite, aligns

measured employee survey feedback with

people metrics and KPIs under cultural

strands. This allows the Board to consider

where there are deviations between what is

being heard and underlying behaviours.

There were no areas of concern raised in

2021/22, with the Board retaining oversight

of ongoing culture-related workstreams

through its wider agenda.

Employees such as these in SSE’s Glasgow

office are guided by the Company’s values

and an ethos of “doing the right thing”.

141SSE plc Annual Report 2022

See also culture on the Board agenda, page 133 

Promoting, monitoring and maintaining a healthy business culture, page 62 

Measuring cultural strands through our Cultural Dashboard

Our culture is determined by the way we…

Attract and

retain people

Work

together

Look after

each other

See

ourselves

Make

decisions

Manage

performance

Lead from

the top

Reflected in the core themes of employee feedback...

Employee

engagement

index

82% ▲

Inclusion

index

87% ▲

Safety

index

82% ▲

Our

strategy

index

85% ▲

Doing the

right thing

index

90% ▲

manager

index

80% ▲

Senior

leaders

index

66% ▲

Wellbeing index

79% ▲ ▲ Above internal 2019 trend benchmark

Supported by key people metrics and KPIs…

Employee

turnover

9.5%

3,195

vacancies

filled

83% of

employees able

to work flexibly

7 “Belonging

in SSE” groups

supporting over

6,000 colleagues

254 Safe Days

6.3 Sick days

per head

5 Climate

Academy

sessions attended

by 4,000+

colleagues

>90% improved

understanding

of climate

90% Certification

across mandatory

eLearning

courses

47 employee

contacts on

Speak Up

platforms

Sustaining

Key Skills

interventions

attended by

10,036 delegates

40 Board-led

employee

engagements,

including

10 Non-Executive

Director for

Employee

Engagement

sessions

Continually improved by cultural action plans and Board support in 2021/22…

Provided

increased and

direct support

to talent

development

and SSE’s IN,

ON, UP approach

(see pages 149

to 150 ).

Oversight of top

leaver reasons;

SSE’s employer

brand; and

activity which

communicates

SSE’s proposition

to external

candidates.

In response

to employee

opinion,

approved a

‘Flexible First’

hybrid working

approach.

Engaged directly

on the topic of

inclusion and

diversity with

employees

(see page 138 ).

Site visits on

safety and

wellbeing

continue to

be conducted

by the SSHEAC

(see page 167 ).

Reviewed safety,

health and

wellbeing

performance at

the start of every

Board meeting.

Approval of

the Net Zero

Acceleration

Programme and

Refreshed 2030

Goals (see page

130 ).

Directly

supported

employee

communications

on strategy

(see page 138 ).

Approved an

enhanced and

more accessible

version of ‘Doing

the Right Thing’

(see page 133 ).

Continued focus

on front line

communications

(see page 138 ).

Reviewed SSE’s

whistleblowing

performance

(see page 133 ).

Agreed that

the revised

Leadership

Blueprint should

remain cognisant

of SSE’s culture

and inclusive to

all future leaders

(see page 149 ).

Continues

to oversee a

leadership review

which confirmed

a strong,

collaborative

organisational

environment in

which there is

trust and a want

to support one

another.

Board’s approach

to leading

by example

(see opposite).

Board presence

across SSE’s full

engagement

approach

(see pages 137 to

139 ).

142 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Division of responsibilities

Defining Board responsibilities

Through the Board Charter, the Board approves the clear division of responsibilities between the Chair and Chief Executive, in addition

to defined role profiles for the Senior Independent Director, Non-Executive Director for Employee Engagement and non-Executive

Directors. This is reflected in the below overview of key executive and non-Executive accountabilities, which support the integrity

of the Board’s operations.

Non-ExecutiveExecutive

Company Secretary

Chief Executive

• Proposing and directing the delivery of strategy as agreed by the Board

through leadership of the Group Executive Committee.

• Ensuring SSE’s decisions and actions are sustainable in the long-term,

through appropriate management, implementation and progress of

sustainability interventions which support SSE’s strategy and address

material impacts including climate change.

• Communicating and providing feedback on the implementation of

Board-agreed policies, and their impact on behaviours and culture,

ensuring SSE operates in a way that is consistent with its values.

• Responsibility for the overall Group of businesses and leading the

functions of: HR; Corporate Affairs and Strategy; and Sustainability.

• Engaging with SSE’s six key stakeholder groups and leading on related

activity at EU, International and UK level.

Finance Director

• Deputising for the Chief Executive.

• Proposing policy and actions to support sound financial management

and leading on M&A transactions.

• Leading the functions of: Finance; Procurement and Logistics; Group

Risk and Audit; IT and Cyber Security; Investor Relations and Company

Secretarial; and the General Counsel areas of responsibility.

• Overseeing and reporting on SSE’s networks businesses.

• Overseeing SSE’s relationships with the investment community.

• Engaging with SSE’s six key stakeholder groups and leading on related

activity in Scotland.

Chief Commercial Officer

• Supporting the work of the Chief Executive and Finance Director.

• Leading SSE Renewables, SSE Thermal, Energy Portfolio Management,

SSE Energy Customer Solutions and SSE Distributed Energy at Board

level.

• Driving growth and commercial market risk activities for all of SSE’s

non-networks businesses at Group level.

• Leads executive relations with trade unions.

• Engaging with SSE’s six key stakeholder groups and leading on related

activity in Ireland and Northern Ireland.

• Compliance with Board procedures and supporting the Chair.

• Ensuring the Board has high quality information, adequate time and the

appropriate resources.

• Advising and keeping the Board updated on corporate governance

developments.

• Considering Board effectiveness in conjunction with the Chair.

• Facilitating the Directors’ induction programmes and assisting with

professional development.

• Providing advice, services and support to all Directors when required.

1 The responsibilities of Senior Independent Director and Non-Executive Director for Employee Engagement apply in addition to those of non-Executive Director.

Division of

responsibilities

Chair

• Leading the effective operation and governance of the Board.

• Ensuring SSE’s decisions are sustainable in the long-term, and the

Group’s approach to sustainability, including climate change, is

addressed through strategic, operational and risk considerations.

• Setting agendas which support balanced decision-making.

• Demonstrating objective judgement and applying sufficient challenge

to projects and proposals.

• Ensuring effective Board relationships and a culture that supports

constructive debate.

• Communicating with major shareholders and key stakeholders to ensure

the Board understands and considers their views.

• Overseeing the annual Board evaluation and identifying any actions required.

• Leading initiatives to assess SSE’s culture and ensuring the Board sets the

correct tone.

Senior Independent Director

• Providing a sounding board for the Chair.

• Leading the Chair’s performance evaluation.

• Serving as an intermediary to other Directors when necessary.

• Being available to all stakeholders if they have any concerns requiring

resolution.

Independent non-Executive Directors

• Scrutinising, measuring and reviewing the performance of management.

• Constructively challenging and assisting in the development of strategy.

• Providing independent insight and support based on relevant experience.

• Reviewing Group financial information and ensuring the System of Internal

Control and Risk Management Framework are appropriate and effective.

• Reviewing succession plans for the Board and key members of senior

management.

• Monitoring actions to support inclusion and diversity.

• Engaging with key stakeholders and feeding back insights as to their

views, including employees in relation to culture.

• Setting executive remuneration policy.

• Serving on or chairing various Committees of the Board.

Non-Executive Director for Employee Engagement

• Developing, implementing and feeding-back on employee engagement

initiatives; providing an employee voice in the Boardroom.

• Representing the Board in discussions with employees and

communicating Board decisions on specific matters.

• Engaging with officers of trade unions and internal trade unions

representatives on key strategic issues affecting the workforce.

143SSE plc Annual Report 2022

Composition, succession and evaluation

Assessing Board

performance

2021/22 Independent Board performance review process

The Board monitors and improves performance by reflecting on the continuing effectiveness of its activities, the quality of its decisions

and by considering the individual and collective contribution made by each Board member.

In line with recognised best practice, the 2021/22 Board and Board Committee performance reviews were externally facilitated by

Lintstock Ltd (Lintstock). Besides the provision of the Board and Board Committee reviews, there was no other contractual connection

between SSE or the individual directors and Lintstock. The contents of this section of the Directors’ Report was reviewed by Lintstock in

advance of publication, who agreed with its accuracy.

• Several providers of Board

performance review services

were invited to provide an

initial proposal as to how

they would approach the

performance review on

behalf of SSE.

• Virtual interviews were

arranged with a shortlist of

respondents which explored

the detail of the proposal

including proposed

approach, costing and

previous experience in the

offering of their services.

• After reviewing the proposal,

and seeking the opinion of

the Board, the Chair with

the assistance from the

Company Secretary and

Director of Investor Relations,

appointed Lintstock. This was

with assurance, that when it

became possible to become

a signatory to the Code of

Practice for Independent

Board Reviewers, they would.

• Considering the outcomes

and effectiveness of the

two previous internal Board

performance reviews,

it was decided that a

comprehensive review of the

Board and its Committees

would be achieved using a

detailed questionnaire – to

be completed by the Board,

Committee members and

secretaries – complemented

by individual interviews with

each member of the Board.

• Throughout the process

the Company Secretary

and Director of Investor

Relations assisted Lintstock

in ensuring appropriate

access to Board members

and the materials required

to facilitate the review.

• A questionnaire was issued

to members of the Board,

its Committees, and the

respective secretaries in

December 2021. To achieve

a comprehensive review,

questions were structured

around agreed topics,

comprising: Board dynamics;

Board composition; Board

support; management

and focus of meetings;

stakeholder oversight;

strategic oversight; risk

management and internal

control; and succession

planning and people.

• Across January 2022,

individual interviews were

carried out with Board

members and the Company

Secretary and Director of

Investor Relations to gain

deeper understanding

of the responses from the

questionnaires. The interviews

were structured to allow

candid conversation as well as

substantive discussion, across

the range of identified topics.

These interviews included

specific consideration of

Board dynamics, affording

the reviewer the opportunity

to make a robust assessment

of how the Board works

together without observing

a Board meeting.

• Based on the information

and views garnered from the

review process, Lintstock

produced the Board

and Board Committee

performance review reports

for review in March 2022.

• The Chair, Chief Executive

and Company Secretary and

Director of Investor Relations

met with the Principal

Reviewer to discuss the

findings contained within

the Board report in advance

of sharing with the full

complement of members.

An equivalent offer was

made to Board Committee

Chairs and secretaries, where

they could meet with the

Principal Reviewer if desired.

• The finalised report of

findings was presented to the

Board in person by Lintstock

at its March 2022 meeting.

Stage 2.

Design of the

performance

review

Stage 1.

Selection of

independent

provider

Stage 3.

Review

process

Stage 4.

Review report,

discussions

and actions

144 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Board Committees

The evaluation of Board Committee performance found that

each Committee remained effective in providing Board support.

Specific findings and the agreement of actions was overseen by

each Committee Chair, with consideration of the overall findings

of the Board performance review.

Progress will continue to be monitored by each Committee,

with details set out in the Reports across pages 145 to 199 .

Individual Director performance

Individual Director performance and contribution was assessed

through one-to-one meetings with the Chair. These sessions

allowed reflection on personal development and discussion of

matters relevant to Boardroom culture and process. The findings,

in combination with individual skills (see page 117 ), the time

commitment, and independence assessments (see page 148 )

confirmed that each Director continues to contribute positively.

Chair performance

The performance of the Chair was evaluated by the Senior

Independent Director based on: feedback which was proactively

gathered as part of the Board performance review; a thorough

discussion with the non-Executive Directors; and individual input

from non-Executive and Executive Directors and selected senior

Opportunities

for refinement

Commentary

and actions

Optimising

oversight of

strategic execution

In light of SSE’s refreshed strategy, the review suggested the Board could consider the format of current

strategic reporting to ensure clear alignment with growth ambitions and monitoring of progress.

Supporting action agreed by the Board:

• The Board reviewed proposals for monitoring progress on strategic execution at its March 2022 meeting,

and agreed updates to further optimise Board oversight, centred on the preparation and presentation of

certain strategic reports on a quarterly basis.

Alignment on

people issues

People matters were identified as a particular area of Board interest and the review concluded that

alignment of expectations and aspirations, together with greater visibility of ongoing activities and

progress, would provide a more effective platform for debate.

Supporting action agreed by the Board:

• Inclusion and diversity progress, targets and reporting was considered at the Nomination Committee

meeting in May 2022 (see page 150 ). The output of this discussion included refreshed diversity

ambitions, providing a revised framework for constructive challenge and monitoring.

• The Board confirmed continued Nomination Committee oversight of the ongoing leadership

development review, to ensure SSE is attracting the right skills and level of capacity to achieve

its strategic plans (see page 149 ).

• It was agreed to enhance Board knowledge of SSE’s leadership teams with continued and increased

face-to-face engagement.

Leveraging

external voices

The findings supported the view that the management team was highly expert and proficient in

the suite of technical matters which fall under its remit. There was however an opportunity for the

Board to complement this, through the use of third-party or external expertise on particular topics.

Supporting action agreed by the Board:

• The use of Board deep dive sessions on certain subjects to begin from May 2022.

• Finding ways to leverage the expertise on the Board on specific matters, such as technology.

managers. The output confirmed that Sir John Manzoni had made

a strong start to the role, following a smooth transition from his

predecessor. He was confirmed to lead the Board with positive

energy and focus, and his dedication to the role was evident.

Over the past year, he provided strong challenge on strategy,

contributing positively to the ambition SSE has articulated,

and engaged constructively with investors on strategy and

environmental, social and governance matters.

He has developed and maintains highly effective relationships with

all Directors, supporting and driving a committed and inclusive

culture that encourages constructive debate and diversity of views.

His positive and open tone further supports the effective operation

of meetings. It was confirmed that he devotes sufficient time to the

role, and in all respects meets the requirements of the Code.

Progress against 2020/21 actions

Progress against the actions agreed through the 2020/21 internal

evaluation process can be found on the following pages:

Continued Board engagement on strategy

(see pages 126 to 131 )

Restart site visits and in-person employee engagement

(see pages 137 to 139 )

Maintain topical deep dives and teach-ins

(see page 148 )

2021/22 Independent Board performance review findings

The findings of the independent Board performance review were highly positive, with the Board characterised as confident in its level

of oversight. Areas which scored particularly well, by the Board and Lintstock relative to an external benchmark, included: the clarity

and development of strategy; monitoring of culture; the effectiveness of risk management surrounding the coronavirus pandemic;

the strength and oversight of stakeholder relations; and Board support through training.

The findings further affirmed a strong Board composition, with discussions cognisant of the attributes which would be desirable in future

appointments, alongside due consideration as to how these should be balanced and prioritised within succession plans.

Whilst the findings were positive and confirmed the Board to be operating effectively, there remained as with all balanced process,

opportunities for improvement and refinement.

Composition, succession and evaluation continued

Assessing Board performance continued

145SSE plc Annual Report 2022

SSE’s Net Zero Acceleration Programme

provides a clear backdrop against which to

assess the competencies SSE will need in

the long term. We have reviewed the Board

skills matrix, which can be found on page

117 , in this context, and spent time on

senior leadership development through

enhanced updates from Group HR. This

has included oversight of an externally-led

leadership development review and

meeting with potential future leaders. We

will continue to review Board and executive

skills and capacity in light of future plans.

A diverse and inclusive workplace remains

a priority for the Board and Nomination

Committee, and underpins discussion at

every level. As at 31 March 2022, the Board

is 50% female and the Board Inclusion and

Diversity Policy has been updated to reflect

this as an enduring aim. As this position

remains sensitive to both changes in the

composition and size of the Board, we will

continue to assess the impact of proposals

in relation to membership and succession.

When John Bason joins the Board in June

2022, female representation will be 46%.

To assist our future work, we note the

recommendation from the FTSE Women

Leaders Review centred on increasing

female representation within key Board

roles, and although we are currently in line

with the Parker Review recommendation

on ethnic diversity, we continue to consider

opportunities for further progress.

At senior leadership level, whilst diversity

has improved, there is a desire to accelerate

the pace of change. We have therefore set

revised ambitions, and actions, which we

will track the initial effectiveness of across

2022/23. Details of these ambitions and our

inclusion and diversity work is set out on

pages 150 to 151 .

I am pleased to present this report and

welcome engagement on our people-led

agenda.

Sir John Manzoni

Nomination Committee Chair

24 May 2022

Dear Shareholder,

The Nomination Committee champions

SSE’s long-term success through its

dedicated focus on people matters. Across

the Board and management, this centres

on effective and inclusive leadership, with

confirmation that SSE has the breadth

of capability and perspectives to drive

measured decision-making and company

culture. The Committee focuses on

succession planning for the Board itself,

and the Group Executive Committee and

senior management, as well as reviewing

supporting talent pipelines. Our focus

group-wide, is on attracting, retaining and

developing the diverse talent needed for

SSE to deliver on its long-term plans.

I am pleased to confirm the successful

appointment of three new non-Executive

Directors to the Board, with Dame Elish

Angiolini and Debbie Crosbie joining us

in September 2021, and John Bason due

to join us in June 2022. As explained on

pages 146 to 147 , these changes result

from two separate search processes,

and defined candidate specifications,

that align with SSE’s strategic ambitions.

The Committee, and Board, believe the

unique and diverse experiences brought by

Dame Elish, Debbie and John will provide

additional rigour and challenge, thereby

enhancing our discussions going forward.

Board Committee membership was

reviewed in September 2021 when

Dame Elish and Debbie joined, and we

have confirmed that John will join the

Nomination Committee and the Audit

Committee, for which he is the intended

Chair designate, upon appointment. Details

of Committee membership refreshment

are on page 149 .

Dame Sue Bruce will achieve 9 years of

Board tenure in September 2022, and the

Board has agreed our recommendation

that her term be extended until 31 March

2023. This is to provide continuity as SSE

seeks to introduce a new Remuneration

Policy which will be voted on at the Annual

General Meeting in July, and across the

new pay policy which we have agreed

with our trade unions. To ensure a smooth

handover in key Board roles, the Board has

further agreed that effective 1 April 2023

Melanie Smith will take over as Chair of the

Remuneration Committee, and Dame

Elish Angiolini as the Non-Executive

Director for Employee Engagement.

Nomination

Committee Report

Role of the Committee

The Nomination Committee provides

dedicated focus to the following

people-led matters.

• Board leadership. Identifies the

skills, knowledge and experience

required for the effective leadership

and long-term success of SSE,

managing the balance of Board

competencies through succession

planning, knowledge development

and targeted recruitment.

• Board Committees. Monitors the

size, structure and composition of

the Board’s Committees to ensure

the necessary support now, and

going forward, in line with

succession plans.

• Talent pipeline. Monitors the

senior leadership pipeline and

initiatives to develop internal

capability, engaging in leadership

programmes and updates on

external recruitment.

• Inclusion and diversity. Under

the Board’s Policy, considers the

perspectives and attributes across

the Board and senior leadership,

confirming ambitions and work to

drive progress, reviewing overall

support for Group-wide inclusion

and diversity strategy.

The Committee’s Terms of Reference

are available on sse.com .

146 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Composition, succession and evaluation continued

Nomination Committee Report continued

Committee evaluation

The annual review of Committee performance was considered

through the formal external Board evaluation conducted by Lintstock

(see pages 143 to 144 ). The output of the evaluation was considered

at the Board in March, with follow-up actions agreed by the Committee for

progression across 2022/23. The Board confirmed the effective operation

of the Committee in discharging its responsibilities.

Evaluation

confirmed

• The quality of information to support the Committee in

discharging its responsibilities was rated positively.

• Non-Executive Director succession planning is supported

by proactive process and clear oversight of Board capability.

• Inclusion and diversity is positioned high on the agenda and

remains a clear priority in conjunction with the Board and

Group HR.

Actions for

2022/23

• Board composition. In line with the refreshed view of Board

skills, continue to review succession plans and the evolution

of the Board to support SSE’s long-term strategic ambitions.

• Executive succession and talent pipeline. Continue focus

on talent and capability across senior leadership, reviewing

Group HR reports on high-potential candidates and internal

and external talent pools.

• Inclusion and diversity. Drive further progress surrounding

inclusion and diversity across senior leadership roles,

reviewing initiatives, plans and ambitions.

Membership and attendance

The membership of the Committee

comprises the non-Executive Directors and

the Chair of the Board, who is also Chair

of the Committee. The Company Secretary

is Secretary, and where appropriate, the

Executive Directors are invited to attend

meetings. Biographical details of the

Committee members can be found on

pages 118 to 122 . The Committee

met six times in 2021/22 with meeting

attendance on page 125 .

Board leadership

Composition and succession

The composition of the Board is informed by

the Committee’s plans for orderly succession

across key Board and Committee roles. This

is supported by regular assessment of the

skills, experience and diversity the Board

needs in line with agreed strategy and

changes in SSE’s operating context. The

backdrop to these discussions comprises

the spectrum of Board work set out across

the Directors’ Report, and the counterparts

of the Board composition dashboard and

skills matrix on pages 116 to 117 .

Following agreement through the prior

year’s evaluation, in September 2021,

the Committee engaged in a refreshed

assessment of Board skills. This was aligned

to SSE’s strategic situation and coupled with

a view of non-Executive Director tenure,

including analysis of where collective and

individual capabilities reside. As an evolution

of existing process, it was used to test the

scope of in-flight workstreams, and confirm

both optionality and coverage for Board

roles across the short, medium and

longer-term. Identified priorities were

fed into the continuum of work on Board

composition, which saw the Committee

support three non-Executive Director

appointments in the period to 24 May 2022.

In the 2021 Annual Report, it was

confirmed that Spencer Stuart had been

engaged to support a prospective non-

Executive Director search process following

the departure of Crawford Gillies. This

concluded with the appointment of Dame

Elish Angiolini and Debbie Crosbie with

effect from 1 September 2021, both of

whom joined the Nomination Committee

from the same date. In May 2022, following

a process supported by Korn Ferry, it was

announced that John Bason would join

the Board with effect from 1 June 2022.

As the intended Audit Committee Chair

designate, he will join the Audit Committee

and become a member of the Nomination

Committee from this time. Details of the

supporting process for each is set out on

page 147 .

An updated title for the Group Energy

and Commercial Director was further

recommended to the Board in March 2022,

with Martin Pibworth becoming Chief

Commercial Officer from 1 April 2022. This

saw no change in underlying executive

responsibility and brings clearer alignment

between Martin’s title and directorate role.

Time commitment

The expected time commitment of the

Chair and non-Executive Directors is

agreed and set out in writing in a Letter

of Appointment. This is issued following

confirmation of an individual’s capacity to

take on the role, based on an assessment

of existing external commitments and

demands on time. Any changes, such as

additional external appointments which

could impair the ability to meet the above,

can only be accepted following approval of

the Board. The acceptance of an external

appointment by an Executive Director is

further subject to Board consent. Approved

changes across 2021/22 are set out on

page 119 .

Director re-appointment

All non-Executive Directors undertake a

fixed term of three years subject to annual

re-election by shareholders. The fixed term

can be extended and consistent with best

practice, does not exceed nine years unless

defined circumstances are deemed to exist.

Extensions recommended in the period

were: a further three-year extension to the

tenure of Melanie Smith and Helen Mahy

representing a second and third term in

each case; and a time-limited extension

to Dame Sue Bruce’s tenure to 31 March

2023. This is to provide continuity as SSE

seeks to introduce a new Remuneration

Policy, and to allow an orderly transition in

the key roles of Remuneration Committee

Chair and Non-Executive Director for

Employee Engagement (see page 149 ).

In each case, the decision was supported

by the continuing independence,

experience and contribution that each

Director brings to both Board and

Committee work (see pages 144 and

148 ).

Key activities in 2021/22

• Reviewed Board composition

and succession.

• Recommended new non-Executive

Director appointments.

• Supported a revised Board

Inclusion and Diversity Policy.

• Reset diversity ambitions for senior

leadership.

147SSE plc Annual Report 2022

Stage 1.

Objective criteria

Stage 2.

Longlist review

Stage 3.

Shortlist meetings

Stage 4.

Candidate selection

Search 1

Rationale for appointment. Preserve Board diversity

and breadth of capability with a focus on the Scottish

operating context.

Criteria to inform role specification

• Experience of Scottish politics and business environments.

• Depth of understanding across national and local government.

• Commercial insight.

Search 2

Rationale for appointment. Support an orderly transition in

the role of Audit Committee Chair and expand international

experience.

Criteria to inform role specification

• Recent and relevant financial experience.

• Exposure to business scale and operational complexity.

• International perspective.

Culture, inclusion and diversity (applicable to both Search 1 and Search 2)

Complementing technical ability, role specifications reflected attributes to support SSE’s culture and were assured for the use of

inclusive language. Both firms engaged – Spencer Stuart and Korn Ferry

– were, and continue to be, signatories to the enhanced

voluntary code of conduct for executive search firms. Candidate pools further comprised corporate and non-corporate

backgrounds with a key requirement being longlists that encompassed diversity of gender, ethnicity, lived experience and skills,

where it was possible to identify relevant characteristics.

1 Spencer Stuart has no further connection with SSE. Korn Ferry provided its executive search service independent of other leadership development and

reward consultancy support for which it is engaged by SSE.

Longlist diversity (Search 1) Longlist diversity (Search 2)

Shortlist diversity (Search 1) Shortlist diversity (Search 2)

Candidate longlists were compiled by the search firm and reviewed by a sub-group of the Committee.

Considering the role specification, individuals were identified for contact surrounding scope and

interest in the Board position.

The Committee agreed the appointment of a search firm who would be best placed to deliver

a comprehensive candidate list through access to diverse search pools. Objective criteria were

set to inform the development of a detailed role specification.

Following confirmation of interested individuals, a shortlist was agreed to meet face-to-face or virtually

with Committee members. Based on feedback from these meetings, and strength of fit with the agreed

role specification, preferred candidates were invited to meet the full complement of Board members.

Appointment recommendations, which remain subject to shareholder approval, were made to the

Board based on the below assessments. This included confirmation that each individual would be

deemed independent on appointment and had capacity to take on the role.

Search 1

Recommendation. The Committee agreed that Dame Elish

Angiolini and Debbie Crosbie would bring strong and diverse

capabilities from their respective distinguished careers; Dame

Elish a legal professional and expert in policy and Debbie a

business leader skilled in operations, technology and IT. Each

possessed detailed understanding of SSE’s stakeholder context

within Scotland, a proven ability to professionally challenge,

and working styles which would complement SSE’s Board and

people culture.

Link to strategy. Bolsters support, and challenge, for

SSE’s domestic growth plans and stakeholder-centric

investment strategy.

Search 2

Recommendation. John Bason was identified as a sound fit,

with a recognised executive and non-executive career in global

complex businesses – in the roles of Finance Director and

Audit Committee Chair – overseeing successful growth and

international joint venture structures. This was complemented

by a clear understanding of the listed company context.

Link to strategy. Contributes to experience of international

operations and growth under SSE’s Net Zero Acceleration

Programme, with strong awareness of finance and risk matters.

Female: 30% Male: 70% No ethnic minorities identified

Female: 40% Male: 60% No ethnic minorities identified

Female: 35% Male: 65% 3 ethnic minorities represented

Female: 56% Male: 44% 1 ethnic minority represented

Non-Executive Director recruitment process

Full biographical details can be found on pages 118 to 122 . The skills and diversity of current Board members is set out

on pages 116 to 117 .

148 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Director induction

Following appointment, all Directors

receive a comprehensive and tailored

induction programme. This is designed

through discussion with the Chair and

the Company Secretary and considers

existing expertise and any prospective

Board or Board Committee roles.

The agreed plan for Dame Elish Angiolini

and Debbie Crosbie comprised over 20

interactive sessions with both internal

functions and external advisors over an

initial period of six months. This was

structured to ensure that information

material to the non-Executive Director

role was delivered in the early stages of

the programme. These formal briefings,

which provide an initial opportunity to

meet senior leadership, are supported

by operational site visits to provide

on-the-ground understanding of SSE’s

diverse business areas and working

environments. Site visits are discussed

further on pages 137 to 139 .

An appropriate induction programme for

John Bason will be agreed upon joining

the Board.

Conflicts of interest

and independence

Each Director has a duty to disclose

any actual or potential conflict of

interest situations, as defined by law, for

consideration and approval if appropriate by

the Board. This requirement is supported by

an annual conflicts authorisation process,

where the Committee reviews SSE’s

Conflicts of Interest Register and seeks

confirmation from each Director of any

changes or updates to their position.

This process informs the simultaneous

assessment of a non-Executive Director’s

independence, as following the absence of

any conflict, the Committee reflects upon

the outcome of each individual Director’s

performance evaluation (see page 144 )

and the circumstances set out in the

Code which could compromise an

individual’s position.

Following review in 2021/22, and to the

exclusion of the interested Director in each

case, the Committee recommended and

Board confirmed: updates to the Conflicts

of Interest Register; the continuing

independence and objective judgement

of each non-Executive Director; and the

overall independence of the Board in line

with the recommendations of the Code.

Additional safeguards to support Director

independence are:

• Meetings between the Chair and the

non-Executive Directors, individually

and collectively, without the Executive

Directors present (see page 125 ).

• Separate and clearly defined roles for

the Chair, as head of the Board, and the

Chief Executive, as head of executive

management (see page 142 ). This

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.

Knowledge and training

Any Director can request further information

to support their individual duties or collective

Board role. The arrangements are overseen

by the Company Secretary and can be

internally or externally facilitated, with

sessions typically originating from technical

Board discussions, an identified training

opportunity or area of general interest

relating to SSE. 2021/22 sessions included:

• The role of CCS.

• An externally delivered session on

energy markets dynamics and

commodity pricing.

• A teach-in on international growth

markets in the USA and Europe.

• A session on electrification of vehicles

with Distributed Energy.

• A teach-in on SSE’s cyber context from

the Chief Information Office.

Through SSE’s mandatory training

programme, all Directors are requested

to refresh their understanding of current

obligations and recent developments in

areas pertinent to their role. These modules

address, among other matters: Directors’

duties; competition law; anti-money

laundering and financial sanctions; GDPR;

and inclusion and diversity.

To remain abreast of, and connected to,

broader societal trends, expectations and

issues, the Directors are encouraged to

participate in seminars and events hosted

by external organisations. Discussion

with peers, other sectors and individuals

in different professional and personal

situations develops broader perspectives

and insights, which can translate into

different thinking styles and new debate

within Board discussions.

Composition, succession and evaluation continued

Nomination Committee Report continued

Dame Elish Angiolini and Debbie Crosbie

induction programme

Areas covered Sessions provided by

SSE’s purpose, strategic priorities

and balanced business operations.

Chief Executive

Group Strategy

MD of each Business Unit

Financial position, performance,

investment and funding, including

credit ratings and external

assurance.

Finance Director

Senior Finance leaders

External Auditor

Energy sector and trends, energy

markets, net zero, sustainability

and stakeholder engagement.

Chief Commercial Officer

Chief Sustainability Officer

Group Corporate Affairs

Corporate governance, Board

operations and shareholder

and investment community

perspectives.

Company Secretary and

Director of Investor Relations

SSE’s brokers

Legal and regulatory views of

the operating context and SSE’s

risk profile.

General Counsel

SSE’s Legal Advisors

Director of Regulation

Group Chief Information Officer

Safety, health and the

environment, people and culture.

Director of HR

Group Safety, Health and

Environment Manager

149SSE plc Annual Report 2022

Board Committees

Board Committee composition is designed

around the following principles:

• to ensure alignment between skillset and

specific Committee responsibilities;

• to prevent undue reliance on the

capacity of any Director; and

• to comply with recognised guidance

including the Code.

Changes are recommended following

directorate appointments and succession,

or in response to formal review. In 2021/22,

the Board approved recommendations

resulting in the below changes.

• Dame Elish Angiolini joined the SSHEAC

on 26 October 2021 and Remuneration

Committee on 15 November 2021.

• Debbie Crosbie joined the Audit

Committee and EMRC on 23 February

2022.

• Martin Pibworth replaced Jim Smith,

outgoing MD, SSE Renewables, on the

SSHEAC on 1 January 2022.

In line with the recommended extension

in Dame Sue Bruce’s tenure, in May 2022,

the Committee put forward the succession

plan for the positions of Remuneration

Committee Chair and the Non-Executive

Director for Employee Engagement, which

saw the Board approve the respective

appointments of Melanie Smith and Dame

Elish Angiolini to these positions from

1 April 2023.

Supporting these recommendations,

was the Committee’s view that Melanie’s

depth of strategy experience, approach

to proactive engagement and focus

on people development, are qualities

complementary to the position of

Remuneration Committee Chair; bringing a

measured approach to setting relevant and

stretching targets, with fair outcomes that

are acceptable to all stakeholders. Melanie

has further served on the Remuneration

Committee since January 2020.

For the Non-Executive Director for

Employee Engagement, Dame Elish

brings rich experience in assimilating and

interpreting views across a multitude of

settings, and is skilled in concluding and

communicating any required course of

action. This speaks to the core purpose of

having a dedicated employee-Board link

and a desire to operate in an empathetic

and thoughtful way.

Talent capability and development

Succession for senior leadership roles and

strategy to support talent development

by building capability for the future, is

overseen by the Committee with support

from Group HR.

On succession, at least annually, the

Committee reviews the existing internal

pipeline of candidates for immediate and

medium to longer term movement into

key leadership and functional roles. This

is subject to routine challenge to ensure

understanding of the breadth of internal

potential and experience represented by

external talent pools. In 2021/22, enhanced

detail was provided on the Business Unit

approach to strengthening leadership

teams, and the Committee and Board

remained updated on the processes

resulting in the appointment of Stephen

Wheeler as MD, SSE Renewables from

1 January 2022 and Catherine Raw as

MD, SSE Thermal from 21 April 2022.

On talent and capability, updates are

provided on: critical skills investment;

people development; and performance

improvement, which are centred on an

agreed set of leadership capabilities and

competencies required for SSE’s long-term

growth. In the context of SSE’s Net Zero

Acceleration Programme, emphasis has

been placed on commercial expertise,

project delivery, digital, data, and the

international context, with these endorsed

as key areas for benchmarking and

developing through SSE’s structured

training interventions.

Members of the Committee engage in core

talent programmes providing exposure

to the talent pool and allowing reciprocal

sharing of experiences, with diversity across

training cohorts monitored in the approach

to encouraging and progressing difference.

Additional engagement with future leaders

is facilitated through presentations at

Board meetings, business-led sessions

and conferences which the Directors

are invited to attend. The open two-way

dialogue between the Board and all levels

of the organisation is seen as a key tool

for observing and informally coaching

emerging talent.

As agreed in 2020/21, to support increased

constructive discussion and measurement

of SSE’s position, a stepped plan of work

comprising a refresh of SSE’s Leadership

Blueprint; agreement of an enterprise

leadership profile; and an externally-led

leadership development review, have

been subject to Committee oversight and

reflection. The outputs remain an area of

focus to agree strengths and shape future

talent work.

COP26: a significant

Board opportunity

As a Scottish headquartered

company, the hosting of COP26 in

Glasgow provided a once-in-a-lifetime

experience for both the Board and

employees of SSE. Maximising the

development and learning opportunity

provided by the large number of

varied events and diverse stakeholders,

was an explicit objective of SSE’s

Principal Partner status. To ensure

SSE’s Directors (non-Executive and

Executive), alongside employees,

would experience the process of

multilateral climate negotiations; the

important role of non-state actors

within that process; and hear first-

hand, the direct experiences of climate

vulnerable nations and indigenous

peoples, members of the Board in

attendance in both the Blue and

Green Zones of the climate conference

participated in over 100 different

events. These covered topics ranging

from power systems innovation, the

electrification of heat to human rights

and a just transition.

150 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

What did the Nomination Committee consider?

Priorities to create the environment, which will support SSE as a diverse and inclusive organisation, and realise progress across

the senior leadership and talent population.

What did the Nomination Committee discuss?

• Gender diversity progress across senior leadership and management populations in 2021/22, which had been subject to

quarterly Group Executive Committee review.

• The impact of attrition rates and internal vacancies to create opportunities for internal moves and hiring for difference.

• Business Unit reporting of progress including agreed diversity priorities, and short and long-list diversity requirements.

• Training to support success by going beyond policies and process, and through coaching people and challenging mindset.

• Improvements in disclosure and data across the senior pool, to better understand SSE’s position and monitor change.

What did the Nomination Committee approve?

New ambitions to monitor and report progress.

• Increase the proportion of women within the Group Executive Committee and its direct reports to 40% by 2025.

• Increase female representation in SSE’s wider Leadership Group, which covers around 900 employees, to 40% by 2030.

• Increase overall female representation across SSE to 33% by 2030.

What were the material stakeholder considerations?

• Employee perspectives. The Board considered external feedback from candidates, external partners and directly from the

employee voice on the inclusivity of SSE’s approach and employer proposition (see page 138 ) in order to understand

material issues and assess if they were being addressed.

• Societal expectations. As a large organisation that directly employs around 11,000 people and that serves communities

and customers, reflecting wider societal expectations across the internal inclusion and diversity agenda supports

sustainable and respectful business operations.

• Driving real change. Impacted by a historically low baseline, diversity progress across the energy sector has been slower

than other industries but change is taking place. Credible ambitions, clear focus and transparent actions, are key to creating

the balance which is required and to change sector bias surrounding the accessibility of roles.

Link to 2030 Business Goal

Champion a fair and

just energy transition

Composition, succession and evaluation continued

Nomination Committee Report continued

Inclusion and diversity

SSE’s Group-wide inclusion and

diversity strategy is explained across

pages 64 to 65 , with the role of

the Committee being to confirm the

acceptability of plans, targets and progress,

and to consider insights and findings from

the initiatives which are in place.

The Board’s Policy

The Board operates under a standalone

inclusion and diversity policy which is

available to view in full on sse.com .

Its objective is to set a Board-led culture

which is inclusive to all views, perspectives

and experiences, and which embraces

and encourages diversity as a norm.

Across Board membership, the Policy

drives balance and alignment with SSE’s

purpose, strategy and values, through

agreed principles and targets which

reflect the measures the Board will take

when considering its own membership

and approach.

Through review in 2021/22, the Committee

recommended a number of updates to the

Policy which are reflected opposite.

Senior leadership ambitions

The Committee is focussed on increasing

the diversity of SSE’s senior leadership

population and pipelines, as championed

by external initiatives such as the FTSE

Women Leaders Review and Parker Review.

To identify the levers for progress, close

work has taken place with the Executive

Directors and Group HR to develop

targeted action, including revised and

stretching ambitions. This represented

a Board-level principal decision in the

period and is discussed further below.

Supporting wider initiatives

Comprehensive updates have continued

to cover the evolution of SSE’s Group-wide

inclusion and diversity approach, and the

factors influencing the choice of targeted

initiatives alongside the extent to which they

have been embedded across SSE. Diversity

scorecards detail the split of diversity criteria

including gender, ethnicity and disability

within recruitment processes for apprentices

through to senior leaders, and also across

the overall employee, new entrant and

leaver populations. Full details of the

underlying strategic approach and progress,

are set out on pages 64 to 65 , and within

SSE’s standalone Inclusion and Diversity

Report 2022 which can be found on

sse.com .

BOARD-LEVEL PRINCIPAL DECISION

SUPPORTING STRETCHING AND SELF-LED AMBITIONS

151SSE plc Annual Report 2022

Policy principles

Linkage to strategy

Policy targets (from 1 April 2022)

The Board’s Inclusion and Diversity Policy

• Identify Board and Committee needs and the balance

of diversity characteristics.

• Adopt a formal and inclusive Board recruitment

process.

• Engage recruitment firms which are signatories to

the enhanced code of conduct and discuss ambitions

for diverse candidate lists.

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.

• 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.

The Board has met its previous target of at least 33%

female membership to be maintained on average over

a 3 year period and, at 24 May 2022, gender diversity

is 50% female and 50% male. When John Bason joins

female representation will be 46%.

• Consider female representation across the roles of

Chair, Senior Independent Director, Chief Executive

and Finance Director.

The Board supports female representation across key

Board roles as demonstrated within Committee Chair

positions and the Non-Executive Director for Employee

Engagement. Targeting the positions of Chair, Senior

Independent Director and Executive Directors will

be considered in succession planning and when a

vacancy arises.

• The Board should have at least one Director from

an ethnic minority background.

The Board’s membership is in line with this target and

the Committee continues to proactively monitor

furthering progress.

See pages 146 to 147 

See pages 140 to 141 

See page 144 

See page 150 

Implementation and progress

• Recruit on an objective and shared understanding

of merit.

• 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.

152 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Audit, risk and internal control

Dear Shareholder,

On behalf of the Board, I am pleased to

present the Audit Committee Report. This

report is intended to provide shareholders

with an understanding of the work we have

done to provide assurance on the integrity

of the Annual Report and Financial

Statements for the year ended 31 March

2022. Much of the work of the Committee

is necessarily targeted around the key

areas of financial reporting, external audit,

internal audit, internal control and risk

management, all of which is underpinned

by a robust governance framework.

During the year, the Committee discussed

the proposed disclosures and assurance

programme to enable the Group to report

against the Taskforce for Climate-related

Financial Disclosures recommendations

as described on pages 42 to 55 . Given

the increased focus and scrutiny on climate

from investors, we reviewed climate

risk considerations to ensure they were

reported on throughout the Annual Report

and Financial Statements on a consistent

basis. For the first time this year, a climate

consideration section is included with the

Auditors’ Opinion on page 339 .

During the year, the Committee considered

the BEIS consultation on ‘Restoring Trust

in Audit and Corporate Governance’ and

assisted the Board in formulating a position

on the key issues for inclusion in SSE’s

consultation response.

At each meeting, we received an update on

the audit and governance reform agenda,

in addition to the project to further

Audit Committee

Report

strengthen the internal control framework

and its effectiveness. As part of this

project, we undertook a benchmarking

exercise against current controls with

support from an external adviser. The

output of this exercise was used to

develop a comprehensive roadmap and

implementation plan which the Committee

regularly oversees. The Committee will

continue to review preparations for

anticipated reform during the year ahead.

Cyber security remains a major focus area

for the Committee. The Director of IT and

the Chief Information Security Officer are

regularly invited to meetings to give an

assessment of cyber risk and update on

progress made in protecting the Group

against evolving threats.

As part of the Committee’s work to support

the refinement of an integrated assurance

model across the Group, the Committee

reviewed a draft of an Audit and Assurance

Policy which is in the process of being

developed for internal and external

publication.

The year ahead will no doubt continue to

bring challenges and opportunities, but the

Net Zero Acceleration Programme gives us

a clear sense of direction and the work of

the Committee will remain fully aligned

with the strategic direction of SSE.

I hope that you find this report informative

and take assurance from the work

undertaken by the Committee during

the year.

Peter Lynas

Chair of the Audit Committee

24 May 2022

Role of the Committee

Financial reporting

• Review the integrity of the interim

and annual Financial Statements.

• Review the appropriateness of

accounting policies and practices.

• Review the significant financial

judgements and estimates

considered in relation to the

Financial Statements, including

how each was addressed.

• Review the content of the Annual

Report and Accounts and advise

the Board on whether taken as

a whole, it is fair, balanced and

understandable.

External audit

• Review and monitor the objectivity

and independence of the External

Auditor, and oversee the policy on

the provision of Non-Audit Services.

• Review and monitor the

effectiveness of the external

audit process and the ongoing

relationship with the External

Auditor.

• Review and make recommendations

to the Board on the tendering of

the external audit contract, and the

appointment, remuneration and

terms of engagement of the

External Auditor.

Internal audit

• Review and approve the Internal

Audit Plan and monitor its

implementation.

• Review and monitor the

effectiveness of the Internal Audit

function, including the adequacy of

the overall Internal Audit resource.

Internal control and risk management

• Review and monitor the

effectiveness of the management

of risk and overall System of Internal

Control.

• Review the framework and analysis

to support both the Going Concern

and the long-term Viability

Statement.

The Committee’s Terms of Reference

are available on sse.com .

153SSE plc Annual Report 2022

Committee evaluation

The actions identified from the evaluation of the Audit Committee in 2020/21 as

reported on last year were monitored through to completion. The evaluation of

the Audit Committee during 2021/22 was externally facilitated by Lintstock and

was based around a bespoke questionnaire and interviews with members of the

Committee. The output of the evaluation was considered at the Board in March

and follow-up actions were agreed at the Committee meeting in May 2022. The

Board confirmed the effective operation of the Audit Committee in discharging

its responsibilities.

Evaluation

confirmed

• Meetings are chaired effectively, dedicating sufficient time

to key issues, and giving all members the opportunity to

contribute.

• The quality of information to support the Committee in

discharging its responsibilities was rated positively.

• The oversight of new developments such as TCFD and

internal control over financial reporting received strong

coverage.

Actions to

progress

during

2022/23

• Ensuring a smooth transition of Audit Committee Chair.

• Supporting developments to enhance the approach to

risk management.

Meetings

The Committee met on four occasions

during the year and has met once since

the end of the financial year. Before each

meeting, the Committee Chair meets with

the Finance Director and External Auditor

to ensure there is a shared understanding

of the key issues to be discussed.

Committee meetings are held in advance

of Board meetings to facilitate an effective

and timely reporting process. The

Committee Chair provides a report

to the Board following each meeting.

Meetings are routinely attended by: the

Chair of the Board; the Finance Director; the

Director of Group Risk and Audit; Partners

from the External Auditor; and the Deputy

Company Secretary (who is Secretary to the

Committee). Senior finance and business

managers are invited to attend certain

meetings to enable the Committee to gain

a deeper level of insight on particular items

of business. The Committee meets with

the External Auditor privately at least twice

each year in line with the financial reporting

calendar and also with the Director of

Group Risk and Audit. These engagements

provide an additional opportunity for

open dialogue and feedback without

management being present.

In addition to the scheduled meetings,

the Committee Chair meets separately

with the Finance Director, Director of

Group Risk and Audit, External Auditor

and Committee Secretary to ensure the

work of the Committee is focused on key

and emerging issues.

Committee membership

The composition of the Committee is

compliant with the Code and currently

comprises four independent non-Executive

Directors as Committee members. Debbie

Crosbie became a member of the Audit

Committee on 23 February 2022 and

brings broad financial and commercial

experience to the Committee. Peter Lynas

has chaired the Committee since 2014 and

is considered by the Board to have recent

and relevant financial experience. He was

Group Finance Director of BAE Systems plc

until 31 March 2020 and is a Fellow of

the Chartered Association of Certified

Accountants. The Board considers

the Audit Committee as a whole has

competence relevant to the sector, with

two members having had significant

executive roles in the energy sector, and

all members possessing an appropriate

level of experience in corporate financial

matters. Biographical details of the Audit

Committee members can be found on

pages 118 to 122  and details of meeting

attendance are set out on page 125 .

Key activities in 2021/22

The Committee has a structured

forward looking planner to reflect the

Group’s annual financial reporting

cycle. The planner informs the

business considered at each meeting

and is regularly reviewed and updated

to reflect areas identified for

additional focus. The practice of

effective governance and quality

reporting underpin all aspects of the

work of the Committee. The key areas

of focus in the year included:

• Assessing the impact of

climate change on accounting

assumptions and disclosure,

including the reporting of TCFD

recommendations.

• Overseeing a project to enhance

the internal control framework for

financial reporting influenced by

the audit and governance reform.

• Developing the approach to

integrated assurance across

the Group.

• Assessing the Company’s readiness

and future areas of focus required

to address areas of anticipated

audit and corporate governance

change.

Fair, balanced and

understandable

assurance framework

The assurance framework used in

the preparation of the 2022 Annual

Report and Accounts to assist the

Directors in the discharge of their

requirement to state that, taken

as a whole, it is fair, balanced and

understandable and provides the

information necessary for shareholders

to assess the Company’s performance,

business model and strategy is as

follows:

• a verification process dealing with

the factual content;

• comprehensive reviews undertaken

independently by senior

management to consider

messaging and balance;

• comprehensive reviews undertaken

by the Company’s Brokers to

ensure consistency and balance;

• reporting by the External Auditor of

any material inconsistencies; and

• comprehensive review by the

Directors and the senior

management team.

The Committee and Board received

confirmation from management that

the assurance framework had been

adhered to for the preparation of the

2022 Annual Report.

154 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Audit, risk and internal control continued

Audit Committee Report continued

Key activities during the financial reporting cycle

SEPTEMBER MEETING NOVEMBER MEETING

Others focus areas

Internal control and risk management

• Received an update on the work undertaken by Group

Compliance, including resource and progress with the

compliance review programme and resulting actions.

• Received an update on the project to enhance the accessibility

and coverage of the Group Financial Polices Manual.

• Approved the initial design and scope of a project to develop

a SOX-lite framework in line with expected regulatory

developments in this area.

• Received an update on the cultural aspects of the risk

management and internal control framework within SSE

Renewables.

• Received an update on Cyber Risk and Information Security

audit actions and approved a reporting framework for further

updates covering Information and Operational Technology.

Governance

• Reviewed a roadmap of all the governance related activity

carried out during the year to support the work of the

Committee.

• Considered the status of audit reform and other related

governance developments likely to have an impact on the

work of the Committee.

Internal audit

• Received an update on the work undertaken by Internal Audit,

including progress with the 2021/22 Internal Audit Plan,

significant findings and audit actions.

Others focus areas

External audit

• Received an update on progress with the audit plan and

approved refinements to the audit strategy for 2021/22.

• Reviewed the independence and objectivity of the External

Auditor, including the fees for the provision of external audit

services.

Internal audit

• Received an update on the work undertaken by Internal Audit,

including audit resource, progress with the 2021/22 Internal

Audit Plan, significant findings and audit actions, in addition to

areas of focus included in the three-year Internal Audit Plan.

Internal control and risk management

• Reviewed Treasury operations, including the funding plan,

liquidity, going concern, hedging and credit ratings and

approved a range of treasury related transactions.

• Received an update on progress with the Group Risk

programme covering the assessment of Principal Risks and

assurance frameworks to assess the effectiveness of the System

of Internal Control.

• Received an update on anti-financial crime governance and

fraud.

• Received an update on progress with the project to further

strengthen the financial control framework.

• Received an update on Cyber Risk and Information Security

across the Group including Operational Technology.

Governance

• Approved the Committee business planner and areas of focus

for 2022.

Key focus: External audit planning Key focus: Half-year Results review

The Committee reviewed and challenged the key accounting

judgements applied in the preparation of the Interim

Financial Results. The Committee received a report from the

External Auditor covering the accounting, financial control

and audit issues identified during the half-year review. The

Committee reviewed the letter of representation issued to

the External Auditor and made a recommendation to the

Board to approve.

The Committee considered the external audit strategy

covering the audit approach, significant risks and areas

of audit focus, scope and materiality for 2021/22. The

safeguards to the integrity, objectivity and independence of

the External Auditor were reviewed. The Committee agreed

the external audit engagement and estimated audit fee for

2021/22.

SEPTEMBER 2021 OCTOBER NOVEMBER DECEMBER

Half-year Results

17 November 2021

Half-year

30 September 2021

155SSE plc Annual Report 2022

FEBRUARY MEETING MAY MEETING

Others focus areas

External audit

• Reviewed the independence and objectivity of the External

Auditor, including the level of non-audit fees.

Internal audit

• Received an update on the work undertaken by Internal Audit,

including progress with the 2021/22 Internal Audit Plan,

significant findings and audit actions.

Internal control and risk management

• Received an update on the work undertaken by Group

Compliance, including resource and progress with the

compliance review programme and resulting actions.

• Received an update on Group-level fraud risks, corruption

and anti-financial crime governance.

• Considered scenarios aligned to the Group’s Principal Risks

to stress test the viability assessment.

• Received an update on progress with the project to further

strengthen the financial control framework.

• Reviewed the proposed disclosure plan and assurance for TCFD.

• Reviewed Treasury operations, including the funding plan,

liquidity and approved a range of treasury related transactions.

Governance

• Received an update on governance covering the Committee’s

Terms of Reference and Non-Audit Services Policy; the

approach to the evaluation of the External Auditor, audit process

and Internal Audit; and the reporting themes for the 2022 Audit

Committee Report.

• Received a report on the qualifying companies in the Group

required to publish reports on their payment practices, policies

and payments, and sought assurances, where necessary, that

further improvement plans were in place.

Others focus areas

Financial reporting

• Reviewed the TCFD disclosures.

• Reviewed a report on the Group’s tax position covering adjusted

underlying tax rate, areas of potential tax exposure and

provisioning and Fair Tax Mark accreditation.

External audit

• Reviewed the effectiveness of the External Auditor and audit

process.

• Reviewed the independence and objectivity of the External

Auditor, including the level of non-audit fees.

Internal audit

• Received an update on delivery of the 2021/22 Internal

Audit Plan, progress with the 2022/23 Internal Audit Plan

and approved the three-year Internal Audit Plan.

• Reviewed and confirmed the effectiveness of the Internal

Audit function.

Internal control and risk management

• Reviewed the effectiveness of the System of Internal Control.

• Reviewed Treasury operations, including the funding plan,

liquidity, going concern, hedging and credit ratings and

approved a range of treasury related transactions.

• Reviewed the analysis to support the Viability Statement.

• Received an update on progress with the project to further

strengthen the financial control framework.

• Received an update on Cyber Risk and Information Security

across the Group including Operational Technology.

Governance

• Approved the narrative of the 2021/22 Audit Committee Report

and Principal Risk related disclosures.

• Received a report on the disclosure of information to the

External Auditor.

Key focus: External Audit control testing and Internal Audit

planning

Key focus: Full-year Results review

The Committee reviewed and challenged the

appropriateness of the accounting in relation to the

significant financial judgements, estimates and exceptional

items in 2021/22. The Committee received a report from the

External Auditor covering the accounting, financial control

and audit issues identified during the full-year audit. The

Committee reviewed the Preliminary Results, 2022 Annual

Report, letter of representation issued to the External Auditor

and made a recommendation to the Board to approve.

The Committee considered the findings from the External

Auditor’s controls report and reviewed progress on delivery

of the audit strategy. The Committee approved the Internal

Audit Plan for 2022/23.

FEBRUARY 2022 MARCH APRIL MAY

Full-year

31 March 2022

Full-year Results

25 May 2022

156 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Financial reporting

The Annual Report and Accounts seek

to provide the information necessary to

enable an assessment of SSE’s position and

performance, business model and strategy.

In preparing the Financial Statements for

2022 there are several areas requiring the

exercise of judgement or a high degree

of estimation.

Throughout the year, the Finance team

worked closely with the External Auditor to

ensure SSE provides the required level of

disclosure, including the appropriateness

of alternative performance measures

(APMs) and their consistency with IFRS

financial information. This section outlines

the significant areas of judgement that have

been considered by the Committee –

through discussion and detailed reporting

by both management and the External

Auditor – to ensure appropriate rigour

has been applied. Other key accounting

judgements and areas of estimation

uncertainty applied in the preparation

of the Financial Statements for 2022 are

provided in notes 4.2 and 4.3.

The Independent Auditor’s Report on

pages 336 to 346  sets out the audit

approach and highlights the other key audit

matters that EY drew to the attention of the

Audit Committee. These areas of audit focus

include: going concern; decommissioning

provisions; provisions and claims; customer

debtor recoverability; Supplier of Last

Resort; carrying value of tangible and

intangible assets; taxation judgements;

exceptional items and APMs; recoverability

of £100m Ovo loan note; ROCs recycle

price; contingent consideration; and

segmental reporting.

Significant financial judgements

and estimates

In the process of applying the Group’s

accounting policies, management

necessarily makes judgements and estimates

that have a significant effect on the amounts

recognised in the Financial Statements. In

consultation with the External Auditor, the

Committee reviewed the significant financial

judgement areas and identified five specific

areas for 2021/22, an increase of one

significant financial judgement areas from

the prior year. Accounting for the SSE

disposal programme, an area of accounting

judgement and estimation uncertainty

reported on last year, was no longer

considered by the Committee to be a

significant financial judgement at the

year-end. Due to recent market volatility,

management has recognised a provision

for expected credit loss in relation to the

recoverability of £100m loan note due from

Ovo Energy Limited following the disposal

of SSE Energy Services on 15 January 2020.

The assessment of the value of the loan in

now considered by the Committee to be a

significant financial judgement. In addition,

the impact of climate change and the

transition to net zero has been included as

a significant financial judgement this year.

The Group’s most significant financial

judgement areas, some of which are

also areas of estimation uncertainty, are

explained below. For each of these areas

the Committee considered the key facts

and judgements outlined by management,

and requested the External Auditor to

provide a professional view on whether the

judgements are appropriate. The Committee

specifically discussed with the External

Auditor how management’s judgement

and assertions were challenged and how

professional scepticism was demonstrated

during their audit of these areas. This also

included the adequacy of the disclosures

within the Financial Statements.

Audit, risk and internal control continued

Audit Committee Report continued

Significant financial judgements and

estimates for the year ended 31 March 2022 How those were addressed by the Audit Committee

Retirement benefit obligations (Estimation Uncertainty)

The assumptions in relation to the cost of providing post-retirement

benefits during the period are based on the Group’s best estimates and are

set after consultation with qualified actuaries. While these assumptions are

believed to be appropriate, a change in these assumptions would impact

the level of the retirement benefit obligation recorded and the cost to the

Group of administering the schemes.

The assets and liabilities of the Group’s defined benefit retirement schemes

are regularly reviewed. Advice is taken from independent actuaries on the

IAS 19R valuation of the schemes. The Committee was updated on the

schemes’ valuation and considered the findings of the External Auditor

in relation to the scheme’s key assumptions relative to market practice.

Following this review, the Committee supported the judgements made.

Further detail of the calculation basis and key assumptions used, the

resulting movements in obligations and the sensitivity of key assumptions

to the obligation is disclosed at note 23.

Going Concern and

Viability Statement

The Committee reviewed the information

to support the assessment and disclosure

of the Going Concern Statement prior to

Board approval (see A6.3 Accompanying

Information to the Financial Statements).

Given the cash surplus of £1.0bn at 31 March

2022; the undrawn committed borrowing

facilities of £1.5bn maintained by the Group;

the current commercial paper market

conditions, with £507m outstanding at

31 March 2022; and the assumption the

Group will be able to refinance maturing

debt, the Directors have concluded that both

the Group and SSE plc as Parent Company

have sufficient headroom to continue as a

going concern. In coming to this conclusion,

the Directors have considered sensitivities on

future cashflow projections resulting from

the Group’s credit rating; the success of the

Group’s disposal programme through

2020/21 and 2021/22; and the successful

issuance of £2.5bn of medium to long-term

debt and hybrid equity during the financial

year 2020/21, along with £1.2bn of long-

term debt and hybrid equity since the March

2022 financial year end. In the very unlikely

event of not being able to access the

revolving credit facility or otherwise

refinance as may be required, the Group’s

options include deferring uncommitted

capex and implementing further cost

reductions. The Financial Statements are

therefore prepared on a going concern basis.

The Committee agreed the parameters

and reviewed the supporting report for the

Board’s assessment of the prospects of the

Company which is covered in the Viability

Statement on page 70 . In doing so,

the Committee considered the Net Zero

Acceleration Programme which includes a

fully funded capital investment programme

to 2026 and as such, the viability period has

been extended to four years.

157SSE plc Annual Report 2022

Significant financial judgements and

estimates for the year ended 31 March 2022 How those were addressed by the Audit Committee

Impairment testing and valuation of certain non-current assets (Financial judgement and estimation uncertainty)

The Group reviews the carrying amounts of its goodwill, other intangible

assets and specific property, plant, equipment and investment assets

to determine whether any impairment or reversal of impairment of the

carrying value of those assets requires to be recorded. The specific assets

under review in the year ended 31 March 2022 are intangible development

assets and specific property, plant and equipment assets related to gas

storage and thermal power generation. In addition, the Group performed

an impairment review over the carrying value of its investment in Neos

Networks Limited. In conducting its reviews, the Group makes judgements

and estimates in considering both the level of cash generating unit (CGU)

at which common assets such as goodwill are assessed against, as well

as the estimates and assumptions behind the calculation of recoverable

amount of the respective assets or CGUs. Changes to the estimates and

assumptions arising from factors such as regulation and legislation

changes (including climate change related regulation), power, gas,

carbon and other commodity prices, volatility of gas prices, plant running

regimes and load factors, discount rates and other inputs could impact the

assessed recoverable value of assets and CGUs and consequently impact

the Group’s income statement and balance sheet.

An annual valuation/impairment exercise is carried out and the basis and

outcome of this review is presented to the Committee by management

and includes a description of the assumptions applied in deriving the

recoverable values. The Committee reviewed and challenged the

assumptions and projections presented in the management paper and

considered the detailed reporting from, and findings by, the External

Auditor. Further detail of the calculation basis and key assumptions used

in the impairment review, the resulting impairment charges and reversals,

and the sensitivity of this assessment to key assumptions is disclosed

at note 15. Detail on the accounting policies applied is included in

the Accompanying Information section A1. Following this review, the

Committee supported the recommendation to recognise an impairment

reversal in the financial year of £331.6m in relation to thermal assets

(Peterhead, Keady, Medway, Marchwood and Great Island) and £97.3m in

relation to gas storage assets. In addition, the Committee supported the

recommendation to recognise an impairment of £106.9m in relation

to its remaining interest in Neos Networks Limited.

Revenue recognition – customers unbilled supply of energy (Estimation uncertainty)

Revenue from energy supply activities undertaken by the Business Energy

and Airtricity businesses includes an estimate of the value of electricity or

gas supplied to customers between the date of the last meter reading and

the year end. This estimation comprises both billed revenue (disclosed as

trade receivables) and unbilled revenue (disclosed as accrued income) and

is calculated based on applying the tariffs and contract rates applicable to

customers against estimated customer consumption and taking account

of various factors including usage patterns, weather trends and externally

notified aggregated volumes supplied to customers from national

settlements bodies. A change in the assumptions underpinning the

calculation would have an impact on the amount of revenue recognised

in any given period.

This estimation is subject to a process which compares calculated unbilled

volumes to a theoretical ‘perfect billing’ benchmark measure of unbilled

volumes (in GWh and millions of therms) derived from historical weather-

adjusted consumption patterns and aggregated metering data used in

industry reconciliation processes. Furthermore, actual meter readings

and billings continue to be compared to unbilled estimates between the

balance sheet date and the finalisation of the Financial Statements. The

Committee reviewed the practical process issues and assumptions applied

in determining the estimation uncertainty and considered the findings of

the External Auditor. Following this review, the Committee supported the

estimate for revenue recognition from energy supply activities. Further

details of the sensitivity associated with this judgement is disclosed at

note 18.

Impact of climate change and transition to net zero (Financial judgement and estimation uncertainty)

To fulfil SSE’s strategy, its Net Zero Acceleration Programme which is a

clearly articulated response to climate change, will drive SSE’s capital

investment and financial activity in both the short and medium term.

With Audit Committee oversight, in 2021/22 SSE enhanced the governance

and elevated its response to the recommendations from the Task Force

on Climate-related Financial Disclosures (TCFD) which involve, among

other requirements, financial impact assessment of the Group’s

identified climate-related risks and opportunities, which are disclosed

on pages 42 to 55 , and the impact of climate change on the

Group’s accounting policies and financial valuations.

The process which the Group adopted in relation to identification and

quantification of its climate-related risks and opportunities is explained at

Page 49  along with the governance processes established to oversee

and approve the associated reporting. The Audit Committee reviewed the

approach adopted by the TCFD Steering Group in relation to this matter

and was also briefed by the External Auditor, EY, on the audit requirements

associated with the adoption of the TCFD including the need for consistency

of disclosure throughout the Annual Report and the technical basis for those

disclosures. Following presentation of the proposed disclosures and the

report of the external auditor on SSE’s approach to the adoption project,

the Committee approved the basis of reporting and the related financial

judgement disclosures included throughout the financial statements for

the year ended 31 March 2022.

Disposal programme and valuation of other receivables (Financial judgement and estimation uncertainty)

With the disposal of its investment in SGN in March 2022, the Group’s

strategic disposal programme came to an end. There had been significant

judgement around certain of the accounting issues associated with the

disposal during the year, including the timing of the investment being ‘held

for sale’ and the treatment of the investment as a discontinued operation.

At March 2022, the most significant financial judgement associated with the

disposal programme was the recoverability of the Group’s £100m loan note

due from Ovo Energy Limited following the disposal of SSE Energy Services

on 15 January 2020. The loan carries interest at 13.25% and is presented

cumulative of accrued interest payments, discounted at 13.25%. Due to

recent market volatility, the Group’s assessment of the value of the loan

note is now considered a more significant financial judgement. While the

carrying value is considered to be appropriate, changes in economic

conditions could lead to a change in the level of expected credit loss

incurred by the Group.

The Audit Committee considered the accounting judgements associated

with the disposal programme throughout the year and reviewed the

accounting for the gains and losses recognised and other judgements

associated with consideration elements, timing and presentation. The

Committee also considered the steps applied by management in making

its assessment of the significant financial judgements associated with the

Ovo loan note. Management has assessed the recoverability of the loan

based on publicly available financial information, the established SSE

methodology for considering relevant credit default spreads, knowledge

of the business and made direct enquiries to Ovo Energy Limited

management. The External Auditor explained the work carried out to

corroborate and challenge the position taken by management on all

judgmental matters and the audit work carried out to validate the

accounting associated with the disposals in the year.

158 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

• insight around the key accounting and

audit judgements and the competence

with which the External Auditor has

applied constructive challenge and

professional scepticism in dealing

with management; and

• the outcome of the review of

effectiveness of the External Auditor

and audit process discussed below.

Independence and objectivity

In addition to the annual review of

effectiveness, the Committee considered

the independence and objectivity of the

External Auditor through: a combination of

assurances provided by the External Auditor

on the safeguards in place to maintain

independence; oversight of the Non-Audit

Services Policy and fees paid; and oversight

of SSE’s policy on employing former

auditors. The External Auditor confirmed

that all its partners and staff complied with

their ethics and independence policies

and procedures including that none of its

employees working on the audit hold any

shares in SSE plc.

External audit

External Auditor

Following a competitive tender process,

EY were appointed by shareholders as

SSE’s External Auditor for the financial

year commencing 1 April 2019. EY were

re-appointed by shareholders at the 2021

AGM and have continued to serve as SSE’s

External Auditor. Hywel Ball is the Senior

Advisory Partner and Annie Graham is the

Lead Audit Partner with responsibility for

signing the SSE plc Audit Opinion on behalf

of EY. Annie Graham leads the engagement

team and has been in post since EY were

appointed and will be required to rotate

after five years.

EY presented the strategy and scope of

the audit for the forthcoming financial year

at the meeting of the Committee held in

September 2021, highlighting key areas of

audit focus (included within the Auditor’s

Report on page 336 ). EY reported against

their audit scope at subsequent Committee

meetings, providing an opportunity for the

Committee to monitor progress and raise

questions, and challenge both EY and

management. EY shared an independent

perspective on certain aspects of the

Group’s financial control and IT systems

arising from its work, and reported findings

to the Committee in February 2022.

During the course of the year, EY shared

insights and feedback with management,

and held debriefs to refine the planned

audit approach for the financial year ended

31 March 2022.

External Auditor and audit

process effectiveness

An important part of the Committee’s

work consists of overseeing the Group’s

relationship with the External Auditor to

ensure the independence, quality, rigour

and challenge of the external audit process

is maintained. The Committee reviews the

effectiveness of the audit throughout the

year taking into account:

• the detailed audit strategy for the year

and coverage of the highlighted risks,

scope, and level of fees for the audit;

• the quality, knowledge and expertise of

the engagement team;

Audit, risk and internal control continued

Audit Committee Report continued

Effectiveness of External Audit

Feedback to inform the review of the effectiveness of External Audit

Management

Assess output from survey

of those subject to the

external audit process.

Assurance on the disclosure

process for the provision of

information to the auditors

has been adhered to.

External Auditor

Assess delivery of the audit

strategy and Independent

Auditors’ Report.

Assess output from survey

of Audit Partners on the

external audit process.

Assurance on the operation

of audit quality process at

audit firm.

Audit Committee

Assess output from annual

Audit Committee evaluation.

Assess output from survey

of Audit Committee

members, regular attendees

and Group Finance.

Outcome

Following consideration of all elements of the audit effectiveness review process, in addition to taking account of the engagement

and communication between the Audit Committee, management and External Auditor, the Committee confirmed it was satisfied

that the external audit process provided by EY had been delivered effectively. The Committee concluded that EY had demonstrated

a depth of knowledge, as well as an appreciation of complex issues, whilst providing constructive, independent and objective

challenge to management. The Committee requested that debrief sessions be held between the External Auditor and finance

management team to consider any areas to enhance the audit process control environment going forward.

External Audit

Assurance from EY

covering independence

(relationships, services

and related threats and

safeguards) and the matters

raised in the FRC’s Annual

Quality Review inspection

reports and remedial

actions (if any) taken

by the audit firm.

159SSE plc Annual Report 2022

£1.9m

£2.5m

£3.8m

£0.28m

£0.2m

£0.1m

2019/20

2020/21

2021/22

£2.18m

£2.7m

£3.9m

External Auditor fees

The Committee considered the audit

fee proposal for the year to 31 March 2022

at its meetings in September 2021 and

agreed the fee at its meeting in November

2021. The factors driving the increase in

the level of fees over the last three years

were discussed with the External Auditor.

The impact of increasing regulatory

requirements, changes in the business

and composition of the Group and the

level of complexity requiring an increased

proportion of specialist resource were

amongst some of the factors taken into

consideration by the Committee when

agreeing fair commercial arrangements

with the External Auditor. The Committee

keeps under review the services provided

by the External Auditor by reviewing a fee

report at each meeting.

Non-Audit Services amounted to £0.1m

and principally related to regulatory

accounts and returns required by Ofgem

and comfort letters in connection with

funding and debt issuance. The Committee

was satisfied that the work was best

handled by the External Auditor because

of its knowledge of the Group and the

services provided did not give rise to threats

to independence. All Non-Audit Services

were approved in accordance with the

Non-Audit Services Policy and adhere to

the FRC Ethical Standard. Fees paid to EY

during the year are made in note 6 to the

Financial Statements.

Re-appointment of

the External Auditor

The external audit contract will be put out

to tender at least every 10 years and will

be conducted by no later than 2029 in line

with prevailing best practice. The Committee

confirms ongoing compliance with the

Statutory Audit Services for Large Companies

Market Investigation (Mandatory Use of

Competitive Tender Processes and Audit

Committee Responsibilities) Order 2014.

Non-Audit Services Policy

The Committee oversees the Non-Audit

Services Policy which governs the

process for approving certain Non-Audit

Services provided by the External Auditor.

The Policy was reviewed by the

Committee during the year to ensure that

it remained fit for purpose and aligned to

the FRC’s whitelist of Permitted Audit-

Related and Non-Audit Services. In

addition, SSE is required to cap the level

of non-audit fees paid to its External

Auditor at 70% of the average audit fees

paid in the previous three consecutive

financial years. Services provided by

the External Auditor are split into two

categories for the purposes of approval:

• Audit-Related Services. These services

are largely carried out by members of

the audit engagement team. The work

involved is closely related to the work

performed in the audit and the threats

to auditor independence are ‘clearly

insignificant’. Such engagements are

routinely pre-approved by the Audit

Committee as part of their approval

of the total annual audit fee. Before

engaging in any work of this type,

approval is required from the

Finance Director.

• Non-Audit Services. These are

services other than ‘Audit-Related

Services’ for which the External Auditor

is an appropriate provider. The threats

to independence arising from such

services are not necessarily ‘clearly

insignificant’ and the Committee and

External Auditor must consider the

threats to independence and whether

any safeguards should be applied. In

the absence of any apparent threat

to auditor independence, approval for

the provision of any Non-Audit Service

must be obtained from the Audit

Committee. The Audit Committee has

pre-approved the use of the External

Auditor for whitelist Non-Audit

Services subject to the following limits:

The Finance Director up to £50,000

and Audit Committee Chair up to

£100,000.

EXTERNAL AUDITOR FEES

Audit and Audit-Related Services

Non-Audit Services

The Committee concluded that it is satisfied

with the objectivity and independence of the

External Auditor, and that the effectiveness

of the external audit process delivered by EY

was robust. The Committee proposed to the

Board that it seek shareholder approval for

the re-appointment of EY for the financial

year ending 31 March 2023.

160 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

the Director of Group Risk and Audit who

joined SSE in early 2020. The Committee

received an update with an overview of the

strategic objectives for the function and

supported the objective to strengthen the

skills and experience of the team.

Internal control and risk

management

Internal control

The Board has delegated to the

Committee responsibility for reviewing

the effectiveness of SSE’s System of

Internal Control. This covers all material

controls including financial and compliance

controls, in addition to the financial

reporting process. Internal control and risk

management in relation to SSE’s energy

market related exposures are overseen

by the Energy Markets Risk Committee

and further information can be found on

pages 162 to 163 .

During the year, the Committee received

an update at each meeting from the project

team established to assess and strengthen

the financial reporting control environment in

anticipation of a SOX style framework being

introduced in the UK. The timing of the

implementation legislation remains unclear,

however, management has continued to

monitor regulatory developments and

provide regular updates to the Committee.

To assist the Committee’s review of the

System of Internal Control, the different

elements are evaluated by relevant

key stakeholders.

Internal audit

Role of Internal Audit

Internal Audit plays an important role in

helping the organisation deliver its vision

and objectives by providing independent

and objective assurance to management,

the Committee and Board on the

effectiveness of SSE’s risk management

activities, internal controls and corporate

governance framework. Internal Audit, led

by the Director of Group Risk and Audit,

reports to the Committee and functionally

to the Finance Director. The purpose,

scope and authority of Internal Audit is

defined within its charter which is approved

annually by the Committee.

In fulfilling its role, Internal Audit seeks

to add value by encouraging continual

improvement in the effectiveness of

business planning, operations and

systems, promoting wherever possible

enhancements to internal control

processes, and seeking to embed ‘best

practice’ throughout the SSE Group.

At each Committee meeting, an update

on Internal Audit is provided covering

an overview of the work undertaken

in the period, actions arising from audits

conducted, the tracking of remedial actions,

and progress against the Internal Audit

Plan. The Committee routinely meets

independently with the Director of Group

Risk and Audit to discuss the results of the

audits performed and any additional insights

obtained on the risk management and

control environment across the organisation.

Internal Audit Plan

The Internal Audit Plan is structured

to align with SSE’s operating model, risk

profile, control environment and assurance

arrangements. The Internal Audit Plan

is split between a one-year plan and a

three-year strategy setting out the broader

areas of Internal Audit focus, together with

the vision and resource for the function.

External providers may be engaged to

support delivery of the Internal Audit plan

where specific skills and expertise require

to be co-sourced. An integrated assurance

mapping and planning process is

undertaken to ensure that Internal Audit

work is appropriately aligned to, and

coordinated with, the activities of other

relevant assurance providers across the

Group. The Plan includes audits of key

transformational programmes, financial

control and areas relating to responsible

behaviour and non-financial risk.

Internal Audit effectiveness

The Committee keeps under review

and assesses the independence and

effectiveness of Internal Audit by adopting

the process outlined below.

The assessment considered Internal Audit’s

positioning within the organisation and

the quality of its planning and operational

procedures. The assessment incorporated

a survey of Internal Audit’s stakeholders

across the Group, along with a review of

outputs from a number of recent internal

audits. During the year, a review of the

Internal Audit function was carried out by

Audit, risk and internal control continued

Audit Committee Report continued

Effectiveness of Internal Audit

Feedback to inform the review of the effectiveness of Internal Audit

Management

Assess output from survey

of Group Executive

Committee and other

key members of senior

management.

External

Assess feedback provided

from the External Auditor.

Assess progress against the

actions identified during the

previous evaluation.

Audit Committee

Views from members of the

Audit Committee.

Outcome

Following consideration of all elements of the review, the Committee recognised the progress made during the year and confirmed

it was satisfied with the overall performance of the Internal Audit function. The key areas of focus for 2022/23 include: recalibrating

the Internal Audit function to adopt leading practices through digital, technology and data analytics; implementation of a people

based strategy that can support talent, career development and succession; and an enhanced approach to identification,

management and mitigation of risk.

Internal Audit

Assess delivery of the

Internal Audit Plan.

Assess audit resource

and expertise.

161SSE plc Annual Report 2022

Board and

Board Committees

Strategic

Objectives

Financial

Objective

Sustainability

Goals

Group Executive

Committee and

Executive

sub-Committees

Business Unit

Executive

Committees and

Corporate Support

Functions

Strategic

Framework

Governance

Framework

Risk Management

Framework

Assurance

Framework

Standards and

Quality Framework

External Audit

Internal Audit

Group Compliance

Group Safety, Health

and Environment

Large Capital

Projects Services

Business

Assurance

Group Risk Management

and Internal Control

Policy

Review of the

Effectiveness

of the System of

Internal Control

Principal Risk

Self-Assessment

Risk Appetite Statement

Viability Assessment

Key Risk Indicators

Business Unit Principal

Risk Self-Assessment

Assurance Evaluation

Risk Blueprint

Group Policies

Governance

Manuals

Business Unit, Policies,

Procedures, Processes

and Systems

These evaluations are assessed by the

Finance Director and a letter is provided

to the Committee summarising the work

conducted in the year to improve the control

environment and making a recommendation

on the overall effectiveness of the System

of Internal Control. In addition, when

undertaking the review of the effectiveness

of the System of Internal Control, the

Committee considers the assurance

evaluations undertaken annually by the

Managing Directors of each of SSE’s seven

Business Units. These assurance evaluations

consider each framework of the system

of internal control form a Business Unit

perspective and include any planned

improvements to enhance controls. These

improvements are tracked, with updates

reported to the executive-level Group Risk

Committee on a regular basis.

Risk management

The Group’s Risk Management Framework

is designed to manage rather than eliminate

the risk of failure to achieve business

objectives. It can only therefore provide

reasonable and not absolute assurance

against material misstatement or loss.

In addition to the ongoing review of

emerging risks, the Board carried out a

robust assessment of the Principal Risks

facing the Group, being those that have the

potential to threaten its business model,

future performance, solvency or liquidity.

Further details of the Group Principal Risks

are set out on pages 71 to 81 .

Internal control and risk

management effectiveness

Following the Committee’s review and

recommendation, the Board agreed that

SSE’s System of Internal Control (including

risk management) continues to be

effective. This was in accordance with the

requirements of the FRC Guidance on Risk

Management, Internal Control and related

Financial and Business Reporting. Taking

into account continuous improvement

actions, the Board also confirms that no

significant failings or weaknesses have

been identified during the financial year.

Processes are in place to ensure that

necessary action is taken and progress is

monitored where areas for improvement

have been identified.

System of Internal Control

The elements that make up the System of

Internal Control are:

• Governance Framework. Designed to

ensure focus on the key components of

high quality and effective decision making

– clarity, accountability, transparency and

efficiency. For further details please see

page 124  of the Directors’ Report.

• Strategic Framework. This includes

Group’s strategic objectives, financial

objective and sustainability goals and

forms the basis for all activity within

the Risk Management Framework.

For further details please see pages 2

to 5  of the Strategic Report.

• Risk Management Framework. This

framework supports each Business Unit

in managing its risks and helps to ensure

that the Board can meet its obligations.

The framework is underpinned by the

fundamental principle that everyone at

SSE is responsible for the management

of risk.

• Assurance Framework. An integrated

programme of audit and assurance

activity that is independent of the day to

day operations of the Business

Units and corporate functions. It is

made up of Internal Audit, Group

Compliance, Large Capital Projects

Services and Group Safety, Health

and Environment.

• Standards and Quality Framework.

Sets out the expected standards

and guidelines to be followed in the

delivery of the Group’s core purpose.

162 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Audit, risk and internal control continued

SSE’s Half and Full-year Results statements.

For further details of SSE’s latest hedging

approach and hedging position see pages

88 to 89 .

To enhance the internal control and risk

management approach in relation to

energy markets, a Group Energy Markets

Exposure Risk Committee was established

in 2021/22, to provide a forum for SSE’s

senior management to discuss and

consider energy market risks and exposures

monthly. This forum reports to the Group

Executive Committee and minutes of

meetings are provided to the EMRC for

review and comment.

Across the period, we continued to monitor

the coronavirus pandemic receiving regular

updates on its economic consequences

and energy market related impacts. This

included reports and minutes from the

Group-level Demand Management

Committee, which was set up to monitor

the impact of the coronavirus pandemic on

SSE Business Energy’s and SSE Airtricity’s

customer demand profile.

For the year ahead, the main priority for the

EMRC is to continue its oversight role in

relation to SSE’s energy markets risks and

exposures. Given the ever-changing external

environment, we will provide particular

focus to the impact, management, and

mitigation of relevant macroeconomic and

geopolitical events. This will include the

impact of a prolonged or an escalated

conflict between Ukraine and Russia

and its influence on energy market prices

and volatility.

I hope you find this report informative and

reflective of the activities undertaken by the

EMRC during 2021/22.

Tony Cocker

Chair of the EMRC

24 May 2022

Dear Shareholder,

This report aims to give insight into

how the Energy Markets Risk Committee

(EMRC) operates, provide an outline of our

activities, and to summarise the role we

have played in overseeing SSE’s energy

markets risk exposures and ensuring the

effectiveness of related risk management,

controls and processes, for the year ending

31 March 2022.

Our main responsibility is to oversee

governance arrangements, which provide

transparency surrounding SSE’s approach

to managing commodity price exposures.

Reports of these exposures are reviewed

and discussed at each EMRC meeting.

When required, actions are recommended

to the Board for approval, including any

changes to SSE’s hedging approach.

Recently, we have overseen SSE

Renewables’ continued assessment of

its approach to hedging, including:

• Further refinement, where appropriate,

of the use of equivalent gas and carbon

trades as a replacement for power trades

along the forward curve. This aims to

both optimise the hedge prices achieved

and reduce the exposure of SSE’s wind

assets to volatile spot power market

outcomes, while still providing a hedge

for most of the anticipated energy and

carbon commodity price exposure.

• Ongoing assessment of market conditions

to optimise hedging outcomes. This has

included an increase in SSE Renewables’

position against its target hedge volume

for financial year 2024/25, in response to

continued high prices and observed

volatility in energy markets.

I would like to highlight that during the

year, despite the historically high and

volatile prices seen on energy markets,

SSE was served well by its measured

hedging approach and successfully

managed any increasing credit and

collateral requirements. As a committee,

we will continue to monitor and oversee

these exposures, and should circumstances

lead to any change in approach being

required, these will be fully discussed,

challenged and appropriately reported in

Energy Markets Risk

Committee Report

Role of the Committee

The Committee oversees SSE’s energy

markets risk exposures by:

• monitoring and supervising SSE’s

hedging approach;

• assessing any potential emerging

energy market issues and risks; and

• reviewing SSE’s internal control and

risk management in this area.

In doing so, it assists the Board

in the effective discharge of its

responsibilities in relation to risk

management and internal control

in this area.

The Committee’s Terms of Reference

are available on sse.com .

SSE approach to hedging

SSE has an established approach to

hedging through which it generally

seeks to reduce its broad exposure to

commodity price variation in relation

to electricity generation and supply

at least 12 months in advance of

delivery. As market conditions

change, SSE may be required to vary

its hedging approach to take account

of any resultant new or additional

exposures. SSE will continue to

provide a summary of its current

hedging approach, including details

of any changes in the period,

within its Half and Full-year Results

Statements. Detail’s of SSE’s latest

hedging approach and hedging

position are set out on pages 88

to 89 .

163SSE plc Annual Report 2022

Key activities in 2021/22

• Continued to monitor the impact

of the coronavirus pandemic;

developments in international

commodity markets; and the

impact of the geopolitical

tension and then Russia’s invasion

of Ukraine.

• Reviewed and received updates on

energy markets which experienced

historically high and volatile prices.

Membership and attendance

The EMRC comprises three non-Executive

Directors, the Chair of the Board and

two Executive Directors. Full details of

membership and meeting attendance are

set out on page 125 . The Chief Executive

and the Managing Director, Energy

Portfolio Management also routinely attend

meetings, with an Assistant Company

Secretary acting as Secretary to the EMRC.

To assist the EMRC in carrying out its

responsibilities, relevant senior managers

can be invited to attend to present certain

items of business and provide additional

levels of insight.

The EMRC membership is approved by

the Board following recommendation of

the Nomination Committee. In line with

new appointments to the SSE Board, the

EMRC membership was reviewed during

the year with Debbie Crosbie becoming a

member from the February 2022 meeting.

This change continues to enhance the skills

and expertise across the EMRC’s

membership, ensuring it is able to effectively

discharge its duties. Upon joining, Debbie

Crosbie was provided with a committee

induction by senior managers which covered

the key focus areas of the EMRC.

The composition of the EMRC allows for the

utilisation of the relevant experience held by

the non-Executive Directors. As EMRC Chair,

Tony Cocker brings extensive knowledge

from his career in the energy industry,

Debbie Crosbie, Melanie Smith and Sir John

Manzoni, provide invaluable insights and a

wealth of knowledge from various senior

roles in the private and public sectors.

Biographical information of the EMRC

members’ backgrounds and experience

is contained on pages 118 to 122 .

Meetings and focus

areas in 2021/22

The EMRC held four scheduled meetings

in 2021/22, and one additional meeting

to receive a report on the market volatility

seen in Winter 2021. After each meeting,

the Committee Chair reports to the Board

on its work. Meeting agendas are informed

by a forward plan of business, which is

designed to ensure the EMRC carries out

its responsibilities in line with its Terms of

Reference. In addition, and outside of the

cycle of scheduled meetings, the EMRC

Chair meets with the Chief Commercial

Officer, Managing Director, Energy

Portfolio Management, and the Committee

Secretary to ensure that key and emerging

issues are brought to the EMRC’s attention

in a timely manner.

The EMRC continues to develop and

regularly review its forward plan of business,

to capture any emerging issues and risks to

SSE arising from energy markets.

Details of the key focus areas and action

taken in the year are set out below.

Key EMRC focus areas in 2021/22

Overseeing SSE’s

hedging approach

• As part of a quarterly report on Energy Markets Risk, monitored:

− hedging arrangements;

− risk control metrics;

− Energy Portfolio Management’s counterparty credit risk exposures; and

− the liquidity of energy markets.

• Reviewed and endorsed the hedging approach and position on 31 March 2022 included in the Full-Year

Preliminary Results Statement and Annual Report 2022.

Energy

Markets Risks

• Received reports on emerging energy market issues and risks (for example in relation to volatile gas markets

due to the tension, and then ongoing conflict, between Russia and Ukraine) and recommended relevant

changes to risk management arrangements, in line with SSE’s hedging approach, to the Board.

• Considered a report on key energy market risks, risk appetites and risk management controls and governance.

• Received reports on reviews of GB and ROI energy markets.

• Received and reviewed a report on the long term price forecasts for gas, carbon and power.

Internal Control

and Risk

Management

relating to Energy

Market Exposures

• Considered a report on the key risks and controls arising from operations within Energy Portfolio Management.

• Reviewed the Energy Portfolio Management MD Letter of Assurance.

• Received an in-depth review of risk control metrics provided internally.

• Received quarterly reports from Internal Audit and details of resulting action plans related to the Energy

Portfolio Management business.

• Reviewed minutes from the Group-level Demand Management Committee, which provided updates on

activities as a result of alterations to customer demand profile due to the coronavirus pandemic.

• Reviewed minutes from the Group Energy Markets Exposure Risk Committee which provides executive-level

oversight of SSE’s energy market exposures and their associated management.

Governance and other

• Considered the output of the EMRC performance evaluation.

• Approved the narrative of the EMRC Report 2022.

• Regularly reviewed the forward business planner.

Committee evaluation

The annual review of Committee

performance for 2021/22 was

considered through the formal

external Board evaluation conducted

by Lintstock (see pages 143 to 144 ).

The evaluation rated the performance

of the EMRC and the Chair highly.

It also indicated that the EMRC is

operating effectively, and continues

to provide appropriate challenge and

oversight of the areas within its remit.

The evaluation also identified that

to continue to adapt to the focus of

the demands of the business and

environment in which the EMRC

operates, the agenda and business

planner should continue to be kept

under review to ensure material

issues and developments were being

discussed at each EMRC meeting.

164 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

SSE was proud to be a Principal Partner

of COP26 in Glasgow and the event was

generated by SSE’s Griffin Wind Farm

in Perthshire. SSE also became the first

company to publish a Just Transition

Strategy in November 2020, this will help to

guide our decision-making and influence

greater fairness for those impacted by the

decline of high-carbon economic activity

and increase the opportunities of climate

action. This was followed in September 2021

by a report focused on moving from just

transition principles to action. In November

2021, SSE announced an ambitious £12.5bn

capital investment plan which will accelerate

progress towards net zero over the five years

to 2026, the majority of which will go to

low-carbon infrastructure.

To support ongoing engagement with

shareholders on climate-related issues,

the Board has proposed a resolution, within

the business of the Annual General Meeting

2022, that will allow shareholders to vote

on SSE’s first Net Zero Transition Report.

The Report is based on our Net Zero

Transition Plan which was published in

March 2022. The aim of the Plan is to

provide SSE’s stakeholders with clarity

around the actions SSE intends to take

towards achieving its net zero ambitions

in both 2040 and 2050. The Net Zero

Transition Plan is available on sse.com .

On behalf of the SSHEAC, I would like to

thank all employees and those that work

with SSE for their sustained effort, hard

work and commitment. I would also like to

welcome Dame Elish Angiolini and Martin

Pibworth who were appointed as new

members of the Committee in the year.

I hope you find the following report a

useful explanation of our work and of SHE

performance during the year.

Helen Mahy CBE

Chair of the SSHEAC

24 May 2022

Dear Shareholder,

I am pleased to present the Safety,

Sustainability, Health and Environment

Advisory Committee (SSHEAC) Report for

the year ended 31 March 2022; a period

in which we expanded our responsibilities

to assist the Board in its oversight of

sustainability governance and assurance

on a range of environmental, social and

governance (ESG) topics. The purpose of

this Report is to explain the work of the

SSHEAC during the year, alongside the

progress that has been made in relation to

safety, sustainability, health and wellbeing,

and the environment. A more in-depth

review of these areas, together with a

range of other ESG reporting can be

found on pages 40 to 67  and in SSE’s

Sustainability Report 2022 which is

available on sse.com .

Our Safety Family licence, ‘If it’s not safe,

we don’t do it’ and genuine drive to take

care of ourselves and each other has

helped many navigate their way through

the coronavirus pandemic. Now, as we

move into a ‘new normal’, we have spent

time reviewing our SHE strategy for the

next five years. There was evidence that

SSE’s SHE engagement programmes

continue to drive improved SHE

performance, and ‘We all get home safe’

provides a measurable goal to aim for.

Moving forward, the engagement and

activity across the organisation will

therefore build on the progress made with

added focus around the SHE strategy aim

of ‘making it easier to do the right thing’.

We’re proud to provide our people with the

tools and flexibility they need to balance

work and life. As coronavirus restrictions

have eased, we have seen our colleagues

returning to offices and we have also been

able to resume the programme of physical

site visits. Across this transition, we have

been exploring technology to establish

how we can better support our employees.

Apart from investing significantly in the

platforms for agile working, extensive digital

resources have been developed to support

the wellbeing of our colleagues. The

Company has reviewed mental health and

wellbeing programmes, trained some of our

colleagues as Mental Health First Aiders and

supported the ‘Time to Change’ initiative

– a commitment to change how we think

and act about mental health at SSE.

Safety, Sustainability, Health

and Environment Advisory

Committee Report

Role of the Committee

• Supports and advises the Board

on matters relating to safety,

sustainability, health and the

environment.

• Provides a leadership forum for

non-Executive Directors to work

with senior management and shape

policy, targets and strategy to

improve safety, sustainability, health

and environmental performance.

• Reviews the implementation of

SSE’s Group Policies relating to:

safety and health; the environment;

climate change; and sustainability.

• Reviews the effectiveness of SSE’s

strategy, initiatives, training and

targets in relation to safety,

occupational health and wellbeing

of employees and contractors,

sustainability and the environment.

• Monitors the level of resource,

competence and commitment

applied to the management of

safety, health, the environment,

and sustainability issues to ensure

a culture of continuous

improvement across SSE.

• Maintains access to a range

of both internal and external

stakeholder perspectives to better

achieve the creation of shared

value for society.

• Supports SSE’s commitment to

being a sustainable company that

makes a positive contribution to the

communities in which it operates.

The Committee’s Terms of Reference

are available on sse.com .

Audit, risk and internal control continued

165SSE plc Annual Report 2022

Key activities in 2021/22

• Resumed physical site visits.

• Reviewed wellbeing support.

• Reformed the Committee.

• Reviewed SHE strategy.

Membership and attendance

The membership of the SSHEAC comprises

four non-Executive Directors; the Chair of

the Board; the Chief Commercial Officer;

the Chief Sustainability Officer; the

Managing Director, SSEN Distribution; the

Managing Director, SSE Distributed Energy;

and the Director of Group Safety, Health

and Environment. An Assistant Company

Secretary is Secretary to the Committee

and the Chief Executive routinely attends

meetings. The Committee invites

operational managers and specialists to

attend certain meetings to gain a deeper

level of insight on particular items of

business. Biographical details of the

non-Executive members can be found on

pages 118 to 122  and details of non-

Executive meeting attendance are set out

on page 125 . During the year, a number

of changes to the Board and executive

membership of the Committee were

considered by the Nomination Committee

and subsequently agreed by the Board.

The detail of these changes are set out

on page 149 .

Meetings and focus areas

in 2021/22

The SSHEAC met four times in 2021/22.

Working closely with the Group Safety,

Health and Environment Committee

(which reports to the Group Executive

Committee), the SSHEAC has an annual

work plan to: review SHE performance at

Group-level and in each of SSE’s seven

business areas; consider in-depth reviews

of certain key topics such as contractor,

asset and process safety; and review a

range of SHE governance and assurance

requirements. Other matters which the

SSHEAC has focused on during the year

include: SHE strategy; SHE targets; SHE

engagement; the environment, including

natural environment; occupational health

and wellbeing; a review of the SHE Risk

Matrix; fatigue management; and legislative

and regulatory developments.

To discharge its new responsibilities the

SSHEAC also considered:

• A climate adaptation and resilience

review developed collaboratively by

Group Sustainability, SSE’s Weather and

Thermal Environment teams, that looked

at the effects of climate change on SSE’s

businesses and outlined the actions

taken so far to support the consistency

of climate adaptation reporting for the

SSE Group.

• An ESG performance review that

summarised SSE’s 2020/21 environmental,

social and governance performance, as

assessed by external ratings agencies and

investor-led initiatives.

• Prior to sign-off, the plan for SSE’s

Sustainability Report 2022 that reports

on SSE’s economic, social and

environmental impacts.

Response to coronavirus

SSE’s over-riding priority through the

coronavirus pandemic has been to provide

the safe and reliable supply of electricity,

at local, regional and national level, on

which the people and organisations

whose work is critical to the coronavirus

response depends.

To ensure people across SSE continue

to work safely, the Committee monitored

the approach taken by the Company

to pro-actively manage the evolving

coronavirus position, and a range of

processes, procedures and guidance were

followed and widely communicated. At an

early stage, SSE introduced coronavirus

testing when needed for its critical workers

and has worked closely with trade union

partners throughout to extend flexible

working practices, particularly for those

with caring responsibilities. The priority

remains continuing to take care of, and

supporting employees.

In 2021/22, SSE launched its Flexible First

employee guidelines which have been

shaped by employee feedback. The

guidelines are designed to harness the

benefits of flexibility, balanced with the need

to connect and work together in the most

effective way. The SSHEAC acknowledges

the well documented link between the

pandemic and the impact on mental health,

and the importance of making the return to

work a pragmatic and positive journey.

Committee evaluation

The actions identified from the evaluation of the SSHEAC in 2020/21 as reported

on last year were monitored through to completion. A detailed review of the

SSHEAC’s remit was completed and its Terms of Reference updated accordingly.

More information about the process can be found in this Report under Reform

of the SSHEAC.

The annual review of Committee performance for 2021/22 was considered through

the formal external Board evaluation conducted by Lintstock (see pages 143 to 144 ).

The output of the evaluation was considered at the Board in March, with follow-up

actions agreed by the Committee for progression across 2022/23. The Board

confirmed the effective operation of the Committee in discharging its responsibilities.

Evaluation

themes

• Good coverage of the key aspects of safety and environmental issues.

The revised scope of the Committee enhanced oversight of ESG

matters with a range of sustainability topics now being reviewed.

• The SSE safety language was described as outstanding, and the

Safety Conference in November 2021 demonstrated how well safety

messages have been embedded.

• The SSHEAC’s contribution have supported and encouraged the

ambition and direction of travel on safety, health and environmental

matters.

Actions for

2022/23

• Site visits. The continuation of site visits is a top priority.

• Agenda. Develop an overall framework for the Committee’s agenda,

to promote a more holistic oversight of safety, health and wellbeing,

the environment and sustainability.

• Deep dives. Consider focused sessions on The Construction (Design

and Management) Regulation, Task Force on Climate-Related

Financial Disclosures, carbon reductions plans and biodiversity.

166 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Reform of the SSHEAC

The output from the 2020/21 performance

evaluation of the Board and its Committees

identified a need to evolve the scope and

coverage of the SSHEAC, to assist the

Board in its oversight of sustainability

governance and assurance on a range of

ESG topics. In support of this, the Board

agreed a series of recommendations at its

meeting in May 2021 to enhance the role of

the renamed Safety, Sustainability, Health

and Environment Advisory Committee. The

key recommendations that were approved

by the Board and which have impacted the

work of Committee are summarised below.

• Responsibilities. The responsibilities of

the Committee were expanded to cover:

(a.) a review of SSE’s comparative ESG

ratings performance; (b.) approval of

the Sustainability Report; (c.) a review

of the physical risks of climate change

on SSE’s activities with a focus on

climate adaptation and resilience; and

(d.) increased oversight of SSE’s policy,

practice and performance surrounding

environmental impacts, including waste,

air emissions, biodiversity and water

consumption.

• Committee name. The SHEAC was

renamed the Safety, Sustainability,

Health and Environment Advisory

Committee (SSHEAC) to reflect its

enhanced role.

• Meetings. A review of the length,

frequency and timing of Committee

meetings was carried out.

SHE Strategy

During the year, the SSHEAC reviewed SSE’s

SHE strategy for the next 5 years. A ‘hybrid’

SHE Conference to engage key local

influencers and a wider community on SSE’s

SHE strategy took place on 30 November

2021. An employee survey showed that

colleagues feel committed to the goals of

the previous 50by20 SHE Strategy which had

been successful in delivering improvements

in SHE performance. The SHE Goals, Safety

Family and Enduring Goals were key features

of the 50by20 Strategy and understood and

recognised across the organisation. These

features have therefore been maintained as

part of the updated SHE strategy.

As part of the SHE Strategy development

activity, feedback from engaging with

colleagues, peer benchmarking and a

review of the learning outcomes from

past incidents, further led to exploring the

concept of ‘how to make it easy for people

to do the right thing’. In this context, the

following focus areas were set out: (a.)

strengthening of controls and assurance;

(b.) enablers to help people do the right

thing; and (c.) drive progress with the 8

Enduring Goals. The five Golden Safety

Rules have also been integrated into the

SHE strategy.

SHE performance

Safety

SSE uses the concept of ‘Safe Days’ as a way

to monitor and track its safety progress and

performance. On a ‘Safe Day’, there are no

minor, serious or major, SSE or contractor,

safety or environmental incidents or any

incident with high potential for harm to

people or the environment. During 2021/22,

254 Safe Days were achieved, compared to

271 in the previous year. In addition to Safe

Days, SSE continues to measure safety

performance using the rolling Total

Recordable Injury Rate (TRIR) for employees

and contractors. This measure is used for

benchmarking and trend analysis, and in

2021/22 it increased to 0.17 per 100,000

hours worked, compared to 0.15 in the

previous year. This increase reflects a

significant surge in construction associated

with SSE’s record capex and increased

activity following the recovery from

coronavirus.

Focus on ensuring everyone gets home

safe remains central to SSE and the

work of the SSHEAC. In March 2022, the

Committee therefore set a TRIR target of

0.15 for 2022/23 and re-iterated the need

to keep focus on having no life changing

injuries or major SHE incidents. This will

continue to be monitored, alongside a

measure of environmental permit breaches

against key Business Units’ milestones to

provide a framework in which to assess

SHE performance in a rounder way. At the

end of April 2022, the longer-term trend on

TRIR had tracked back to the 0.15 level.

Health and wellbeing

Health and wellbeing is at the core of

SSE’s Safety Family. It reinforces very

directly how we can take care of ourselves

and each other.

To strengthen the occupational support

SSE offers; it recruited a new Head of

Health and Wellbeing during the year. A

supporting review of occupational benefits

concluded that there is a very good range

of support with the ability for some services

to be used more and/or expanded upon.

Building on the good foundation that is

already in place and using all-employee

survey findings, SSE is looking to integrate

the following into the health and wellbeing

support model: (a.) making it easy to do the

right thing; (b.) making the uncomfortable,

comfortable; and (c.) service and support.

A range of resources are available to

employees to help them take care of

themselves and others, including Employee

Assistance and Back to Health programmes

supported by Nuffield Health. A wellbeing

app provides home workout videos and

tailored programmes and the ’Mental

Health Toolkit’, that is being developed, is

designed to support managers by providing

information on various concerns all related

to mental health. SSE’s priority for 2022/23

will be to continue to support employees to

adapt to new working conditions and look

after their mental and physical health.

Environment

To achieve its core purpose to provide

energy today while building a better world

of energy for tomorrow, SSE’s strategy seeks

to simultaneously create value for both

shareholders and society. The framework it

uses to achieve this objective is the United

Nations Sustainable Development Goals.

SSE’s Environment strategy sits firmly within

the sustainability hierarchy within the UN

Global Goal framework. Operationally,

SSE focuses on three priority pillars:

(a.) environmental management and

governance; (b.) responsible resource use;

and (c.) natural environment.

In 2021/22, the number of environmental

incidents as a result of SSE’s activities totalled

60, compared to 44 in the previous year. Of

these, there were no major environmental

incidents. SSE’s environmental permit

breaches increased to 7 in 2021/22 from

4 the previous year. The majority of

environmental incidents were minor and

most permit breaches were self-reported

to the relevant environmental agencies.

All incidents were dealt with quickly when

identified. During the year, SSE’s carbon

footprint benefited by having reduced travel,

with most colleagues using the Flexible First

approach to work combining office and

home working, and utilising technology.

Sustainability

Significant progress was made across the

most material areas of sustainability in

2021/22, with the SSHEAC reviewing SSE’s

performance in each environmental and

social category identified by ESG-focussed

investors and ratings agencies, approving

areas for development and improvement

in the next financial year. In terms of

SSE’s approach to the disclosure of its

sustainability impacts, the aim is to bring

about continuous improvement in both the

quality of information disclosed and across

stakeholder engagement. SSE’s Sustainability

Report aims to demonstrate the way SSE

creates value for shareholders and society

Audit, risk and internal control continued

Safety, Sustainability, Health and Environment Advisory Committee Report continued

167SSE plc Annual Report 2022

in a sustainable way and provides detailed

information on the policies, practices,

performance and governance of a range

of economic, social and environmental

matters. The SSHEAC has responsibility for

approving the Sustainability Report which

is available at sse.com/sustainability .

Complementary information can also be

found on pages 40 to 67 .

Site visits

Easing of coronavirus restrictions allowed

for the programme of SSHEAC site visits to

resume in 2021/22. Instead of all members

participating in the same site visit, it was

agreed to broaden the coverage through

two members of the SSHEAC teaming up

and focusing on a particular area during

September 2021. Site visits included:

Slough Heat and Power; Keadby 1 and 2;

Walton Park; Solent Park; and the Viking

Windfarm construction site on Shetland,

followed by a visit to the Transmission

HVDC convertor station site and to Lerwick

Power Station. A large part of the meeting

held in October 2021, which had been

organised outside of the schedule of

Committee meetings, was dedicated to

receiving feedback and agreeing next steps

in the process of continuous improvement.

Overall, it was agreed that the safety site

visits were powerful in providing members

of the SSHEAC with a breadth and depth of

knowledge across a range of projects and

operational activity.

A structured approach to site visits ensures

that feedback is collected and acted upon.

This is facilitated by a dedicated feedback

template which is completed by members

of the Committee following completion of

an engagement. The SSHEAC has agreed

the site visit programme for 2022 which will

be reported on next year.

The below represents feedback provided by the members of the SSHEAC on

a visit to Keadby 1 in September 2021.

If it’s not safe, we don’t do it

• The site is currently operating

under a number of operational

access restrictions which is being

monitored closely. The leadership

team provided a clear account

of how operational teams were

engaged on the approach, to

ensure effective management

of this risk.

We take pride in our work

and our environment

• A good level of housekeeping and

appropriate coronavirus signage

was observed.

• A remote induction in addition to a

local site orientation was provided.

• The approach taken during

outages – external tents for

coordinating meetings – was seen

as best practice.

We take care of ourselves

and each other

• The local SHE community group

operates effectively with the

45 people on site engaged. This

includes representatives from

Engineering, Operations and

Maintenance teams.

We see it, sort it and report it

• The contractor workshop was a

well set up area and work being

done was highly organised.

• Coronavirus restrictions in the

permit office were well managed.

• Weeds in the HV compound had

been identified by the on-site

team and work to address had

been planned.

Plan, scan and adapt

• The Gated process for outages

was presented, and judged as

being very effective in ensuring

that the work being done was

well planned and appropriate.

• Work coordination between

Keadby 1 and Keadby 2 was in

place, with weekly integration

meetings and an embedded

Keadby 1 team member in the

Keadby 2 team.

What would make it easy

(or easier) for people to do

the right thing?

• The on-site team were comfortable

with the steps being taken to

address coronavirus.

• Supervision was highlighted as an

important area. The benefit of the

empowering supervisor training

was noted, alongside ensuring

adequate time was allocated for

supervisory activities.

Overall impression

Keadby 1 is moving towards the

end of its operations and the site

are managing the transition well,

in addition to preparatory work for

the operation of Keadby 2.

Site visit to Keadby 1 – our Safety Language in action

168 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Dear Shareholder,

This Directors’ Remuneration Report sets

out simply and transparently how SSE pays

its Directors (both Executive and non-

Executive); the decisions made on their pay

in 2021/22; and how much they received

in relation to the financial year ended

31 March 2022.

Delivering on strategy

In November 2021 SSE set out its strategic

Net Zero Acceleration Programme for

sustainable, long-term growth aligned to a

1.5°C global warming pathway. As detailed

earlier in this Annual Report, good progress

against the programme – with its £12.5bn

capital expenditure plan to 2026 and new

medium-term business goals to 2031 –

has been made in the intervening months.

SSE has been investing around £7m a

day in low-carbon infrastructure at home

and has started to export its developer

expertise abroad, creating tangible value

for stakeholders.

In addition, throughout 2021/22, SSE has

delivered solid operational performance.

Highlights include strong earnings

performance despite unfavourable weather

for renewable generation, the conclusion

of the disposals and re-structuring

programme with £2.8bn of proceeds,

improvements in employee engagement

despite the pandemic, a positive reaction

to our involvement with COP26 where

SSE was a Principal Partner and strong

Total Shareholder Returns. Our employees

have once again contributed amazingly

throughout the year and a special payment

has been made of £500 or €600 to

employees in recognition of their

excellent contribution.

2021/22 AIP outcomes

The Annual Incentive Plan (AIP) is

determined against a broad range of

financial, operational, strategic, and

personal performance targets collectively

designed to reflect business performance

each year. The measures used for 2021/22

were chosen to support our strategic

delivery and longer-term goals.

Performance in the year has been strong

across a range of metrics which resulted

in an assessment of the 2021/22 award

being up to 83% of the maximum. The

Committee considered the results in the

context of other performance indicators

and the wider stakeholder experience and

determined that the result was fair and

reasonable so did not apply any discretion.

As a reminder, the Committee has used

downward discretion three times in the

previous five years. A detailed AIP scorecard

can be seen on pages 186 to 189 .

2021/22 PSP outcomes

The Performance Share Plan (PSP) awards

granted in 2019 are due to vest following

the 2021/22 financial year, subject to

financial, operational, and value-creation

performance measures over the three-year

period. These have been objectively

assessed, resulting in an outturn of 66% of

maximum. The Committee confirmed that

the formulaic outcome for these awards is

appropriate and no discretion was applied.

More details on the performance measures

used, the targets set, and the performance

outturn is set out on pages 189 to 190 .

Remuneration Committee Chair’s statement

Performance and

delivery in a year

of volatility

Role of the Committee

The Remuneration Committee is

responsible for the following:

• The Remuneration of SSE’s most

senior Executives and also Chair

of the Board. The Committee also

reviews but does not decide the

remuneration of SSE’s employees.

This ensures that the decisions on

executive pay take full account of

pay across the Company.

• The Directors’ Remuneration Report

and for ensuring that, at least every

three years, shareholders are asked

to approve a new Directors’

Remuneration Policy at the Annual

General Meeting. The Terms of

Reference of the Committee which

are reviewed annually and are

available on sse.com .

The Committee bases its activities

with four principles and objectives

in mind. 1.) the Company’s culture

and values; 2.) the link between the

remuneration framework with the

Company‘s purpose and strategy 3).

ensuring the remuneration framework

is designed to promote the long-term

success of the Company and 4.)

ensuring the performance-related

elements of pay are transparent,

stretching and consistently applied

as well as linked to the successful

delivery of strategy.

An Assistant Company Secretary is

secretary to the Committee and the

Chief Executive and the Company

Secretary and Director of Investor

Relations are invited to attend all

meetings. The Committee ensures,

however, that no individual is ever

present when their own remuneration

is under discussion or decisions are

made. The Committee also takes

independent external advice on

remuneration and corporate

governance and appoints its own

professional advisers for this purpose.

169SSE plc Annual Report 2022

Linking policy to purpose

Our current Directors’ Remuneration Policy

was approved by shareholders at the 2019

AGM, with over 99% support. The policy is

built on our core reward principles which

endure. They are:

1. Sustainability, reinforcing SSE’s

commitment to being a responsible

employer

2. Simplicity, maximising transparency

and avoiding unnecessary complexity

3. Stewardship, encouraging good

decision-making for the long term

4. Stakeholders, reflecting SSE’s strategic

goal of creating value for shareholders

and society.

The policy expires at the AGM and the

Remuneration Committee is seeking to use

the three-yearly review cycle to strengthen

and align the approach to pay with SSE’s

purpose and long-term strategy as set out

by the Net Zero Acceleration Programme.

The changes to the Policy will play a key

role in the successful execution of SSE’s

strategy, including the stated investment

and growth plans to create the conditions

for SSE to succeed, the Remuneration

Committee took the view that changes to

pay were necessary at this time for four

main reasons.

• Sustainability is central to SSE’s purpose

and strategy. Operational excellence will

be key to successful delivery of the Net

Zero Acceleration Programme. Hence,

we propose to include sustainability

measures in the Performance Share Plan

(PSP), to reflect the long-term nature of

these targets, whilst also retaining an

“in-year” focus on progress by including

a smaller element within the Annual

Incentive Plan (AIP). This increases

the emphasis on sustainability overall,

as well as focusing it more to the longer

term. We also plan to introduce

operational measures into the AIP

and strategic measures into the PSP.

• Our total remuneration arrangements

currently place insufficient emphasis on

long-term performance-related pay and

a market correction is required. This

applies to both the level of awards under

the Performance Share Plan and SSE’s

share ownership requirements which are

both below market. The performance

share awards are key to ensuring that

we are paying fairly and competitively in

exchange for delivery and higher levels

of performance. We are not proposing

to make increases to basic salaries above

the norm for all SSE employees.

• SSE’s overall approach to executive

remuneration is in line with SSE’s historic

policy positioning because of long

standing pensions arrangements in place

for incumbent executives. The Board is

keen to structure the policy to ensure that

it can attract world-class talent for whom

existing historic pension arrangements

will not exist. This is particularly important

as SSE becomes more international and

recruits from new geographies.

• Our Executive Directors are key to the

success of the Net Zero Acceleration

Programme, and we shall be asking

more of them than ever before as we

move into a new phase of accelerated

growth for SSE.

As Chair of the Remuneration Committee,

I consulted extensively with our largest

shareholders and other interested parties.

The engagement process began in

February to allow as much time as possible

to listen to the views of our shareholders.

I am extremely grateful to everyone who

was generous with their time and shared

their views on the proposals. Most

shareholders were supportive of the

changes. All the feedback we received

from investors was considered by the

Remuneration Committee. As a result, we

have adapted the proposals in a number of

ways. We changed the proposal to reduce

the weighting of financial and share-based

measures under the PSP in light of the

feedback. EPS and relative TSR still account

for 70% of the award. Dividend Per Share

remains a crucial KPI but we shall reward

instead achievement against specific

strategic and sustainability goals. Some

shareholders asked us to link incentives to

return on capital or return on equity. The

Committee debated this at length and, at

this stage, take the view that stretching

targets could not readily be set for ROCE

given the range of returns across SSE’s

businesses. The key inputs of ROCE are,

however, linked to incentives. The new

strategic and operational measures are also

more robust. The Remuneration Committee

expects of course that it will be required

to use its judgement, as it currently does,

when assessing the extent to which targets

have been met.

Details of the Policy changes can be found

in full on page 172 , but in summary the

key changes are set out overleaf.

170 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Remuneration Committee Chair’s statement continued

Element of pay Change in approach Rationale

Fixed pay

The current policy limits SSE to paying total remuneration

levels below the median. No material changes are

proposed to base salaries, benefits nor pensions for

incumbent Executive Directors (other than pension

allowance for the Chief Commercial Officer which

will now reduce to the employee-aligned level of 15%

of salary at the end of 2022 rather than April 2023).

The overall policy objective is to set a competitive, but

not excessive, total remuneration position against our

chosen benchmarks. There is no plan to make any

market adjustments to the basic salaries of the current

Executive Directors. The change is intended to ‘future

proof’ our Policy.

Annual

Incentive Plan

No changes to levels.

The award will continue to be delivered as 67% in cash

and 33% in deferred shares, but the last award of career

shares will be made in 2022 on the basis that a more

conventional post-cessation shareholding will be

introduced (see below).

The Policy will provide greater flexibility to reward

operational excellence which will be central to the success

of SSE’s Net Zero Acceleration Programme and hence

we plan to place a heavy weighting on it (see below).

Performance

Share Plan

awards

Increase headroom and the 2022 awards by 50% of

salary to 250% of salary for the Chief Executive and

225% of salary for the Finance Director and Chief

Commercial Officer.

Changes to the measures and raising the standards

of performance targets.

The increase in the level of awards is proposed to put

more emphasis on long-term pay and performance

and to reflect the increase in the standard of achievement

required to reach ‘stretch’ levels of performance and

reward (see below). The increases also improve SSE’s

market competitiveness now and for the future albeit

that award levels remain at or below median of the peer

group. We debated whether to delay the increase in the

award levels and after careful consideration decided not to.

The reasons for this are: 1.) the successful delivery of SSE’s

Net Zero Acceleration Programme is more important than

ever to alleviate continuing energy pricing pressures on

consumers 2.) the performance targets set in line with

the Net Zero Acceleration Programme are tougher than

hitherto (see below) and 3.) our proposed new Policy is

expressly designed to place greater emphasis on longer-

term goals and reward long-term performance. The Chief

Executive’s maximum total pay will be 93% of the market

median if shareholders approve the change.

ownership

The shareholding requirement will increase to 250%

of salary for the Chief Executive and 225% of salary

for other Executive Directors. All will be required to

continue to hold shares for two years after cessation

of employment.

This change aligns the in service and post-employment

service holdings to the new annual PSP award levels

and with current market practice. Career shares already

awarded and future awards under the new PSP awards

from 2022 will count towards the post-employment share

ownership requirement.

Malus and

clawback

Updated to include:

• Corporate failure

• Material risk failure

• Material detriment to stakeholders or to the Company’s

market reputation

• Unreasonable failure to protect stakeholders’ interests

The additional triggers reflect developments in market

practice since the last policy review. The same triggers

will apply in the case of both malus and clawback.

171SSE plc Annual Report 2022

Policy implementation

The Committee reviewed Executive

Directors’ base salaries and concluded that

in light of continued strong performance

and leadership throughout the year, an

increase of 3% was appropriate. This is

in line with the negotiated increase for

collectively-bargained employees and the

broader pot for all other employees with

effect from 1 April 2022.

The structure and quantum of the AIP

remains unchanged. However, as noted

above, we have considered the importance

of operational excellence as central to

the success of the Net Zero Acceleration

Programme and have therefore reweighted

the AIP measures to support this objective.

For 2022/23 the proposed measures and

weightings are:

• EPS growth –30%

• Cash flow (defined as net debt to

EBITDA) – 20%

• Operational measures – 30%

• Sustainability – 10%

• Individual/strategic objectives – 10%

Measures will be both quantitative and

qualitative. The operational measures

include seven core areas which are

Renewables, Distribution, Transmission,

Thermal, Customer, People, and Other

Growth and Transactions. The sustainability

measures, which will also appear in the

longer-term plan, will be linked to SSE’s

relative sustainability as assessed against

four external ESG ratings agencies using

their own benchmarks. Individual strategic

measures will include progress being made

towards inclusion and diversity targets.

The PSP award levels, subject to

shareholder approval, will be 250% for the

Chief Executive and 225% for the Finance

Director and Chief Commercial Officer.

Reflecting the higher award levels, the

Committee has set tougher target ranges.

The proposed measures and weightings

are:

• Relative TSR – 50%

• EPS growth – 20%

• Strategic measures – 15%

• Sustainability – 15%

The Remuneration Committee will also

adjust any total pay outcomes downwards

(to zero if necessary), for example, if they

are deemed by the Committee to be

disproportionate or out of line when we

take into account the interests of our

stakeholders or where there has been

a mismatch between financial and

non-financial performance over the

relevant period.

More details of the performance measures,

weightings and targets are set out on

pages 196 to 198 .

Summary

The Committee believes that the changes

to policy, and the performance measures

and targets for 2022/23 incentives, will

sharpen our focus on delivering the Net

Zero Acceleration Programme and support

the retention and recruitment of the high

calibre talent in a very competitive market.

Looking ahead, we will continue to apply

our core principles in terms of transparency

in both decision-making and reporting and

do so in a way that is fully cognisant of the

perspectives of SSE’s stakeholder groups.

In line with that, I welcome any feedback

or comments on this Report or on

remuneration matters more generally

and can be reached via Sally Fairbairn

at sally[email protected] .

Dame Sue Bruce DBE

Chair of the Remuneration Committee

24 May 2022

172 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Directors’ Remuneration Policy

Introduction

SSE’s Directors’ Remuneration Policy (the “Policy”) is set out as follows. The Policy is subject to a binding shareholder vote at SSE’s AGM

on 21 July 2022 and, if approved, will apply from this date. It is intended that the Policy will apply for a period of up to three years and will

need to be re-approved at the 2025 AGM at the latest.

The Policy was reviewed and approved by the Remuneration Committee. As part of the process, the views of our larger shareholders and

other shareholder advisory bodies were sought. In addition, the thoughts of other Board members, management and external advisers

were considered. The members of the Committee then made decisions independently without inappropriate influence. No person

participates in decisions relating to their personal remuneration.

Principles

The Committee believes it is essential that our overall remuneration policy is strongly aligned to SSE’s purpose and strategy. It aims

to ensure this by focusing on our core principles which are: Sustainable, Simple, Stewardship, Stakeholder-focused. In addition, we

have reviewed our policy in line with the UK Corporate Governance Code which encourages a description of how the policy addresses

the following:

Clarity

• Our directors’ remuneration policy is designed to be sustainable

and simple and to support and reward diligent and effective

stewardship that is vital to the delivery of SSE’s core purpose

of providing energy needed today while building a better world

of energy for tomorrow, and our strategy of creating value for

shareholders and all stakeholders.

• 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.

Simplicity

• Our pay arrangements include a market standard annual

incentive and long-term share plan, each of which is explained

in detail in our Policy.

• No complex or artificial structures are required to operate

the plans.

• We explain our approach to pay clearly and simply.

Risk

• Appropriate limits are stipulated in the Policy and within the

respective plan rules.

• The Committee also has appropriate discretions to override

formulaic outturns under the assessment of the variable

incentive plans.

• The Committee undertakes an annual risk review of the

Policy and its operation. Identified risks are considered with

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.

Predictability

• The possible reward outcomes can be easily quantified,

and these are reviewed by the Committee.

• The graphical illustrations provided in the Policy, clearly show

the potential scenarios of performance and pay outcomes

which would result.

• Performance is reviewed regularly so there are no surprises

when performance is assessed at the end of the period.

Proportionality

• Variable incentive pay outcomes are clearly dependent on

delivering the strategy.

• Performance is assessed on a broad basis, including a

combination of financial, operational and sustainability which

ensures there is no undue focus on a single metric which may

be at the detriment of other stakeholders.

• The Committee also has the discretion – which it has used – to

override formulaic outcomes if they are deemed inappropriate

in light of the wider performance of the Company and

considering the experience of stakeholders.

Alignment to culture

• At the heart of the Policy is a focus on the long-term

sustainability of the business.

• This reflects the whole business culture which is aligned to

effective stewardship which creates value for all stakeholders.

• Our incentive plans and, in particular the approach to

measuring performance reflect our values which means

doing the right thing, promoting fairness at work and paying

our fair share.

173SSE plc Annual Report 2022

Changes from current policy

The key changes between this Policy and the policy which was approved by shareholders at SSE’s 2019 AGM are as follows:

• Base pay – change is proposed to the market posture against the comparators and reference points used when setting salaries.

• Pension – updated to reflect the acceleration of the pension alignment for the Chief Commercial Officer and includes a maximum

limit for any new Executive Director which is aligned to the wider workforce.

• Annual Incentive Plan – replacement of the career shares facility by a more market-standard post-shareholding requirement and

scope to use operational performance measures as well as financial and strategic measures.

• Performance Share Plan – provides for additional headroom for annual awards of up to 250% of salary for the Chief Executive and

225% of salary for other Executive Directors in return for tougher performance targets.

• Share ownership – an increase in the shareholding expectation to 250% of salary for the Chief Executive and 225% for other Executive

Directors which will apply during employment and for two years post cessation of employment.

• Malus and clawback –the list of triggers has been extended and strengthened and the same triggers apply to both.

Any other changes in wording or presentation are considered to be immaterial to the operation of the Policy.

Policy Table

Base Salary

Purpose and link to strategy The base salary supports the retention and recruitment of Executive Directors of the calibre required to

develop the Company’s strategy, deliver efficient operations and investments, and engage effectively

with the Company’s key stakeholders. It is intended to reflect the role and its responsibilities, business

and individual performance measured against SSE’s strategy and core purpose of providing the energy

people need in a reliable and sustainable way, and to have an awareness of competitive market pressures.

Operation The Committee sets base salary taking into account:

• the individual’s skills, experience and performance;

• salary levels at other UK listed companies of a similar size and complexity and other energy

businesses;

• remuneration of different groups of employees and wider internal pay arrangements; and

• the overall policy objective is to set a competitive, but not excessive, total remuneration position

against our chosen benchmarks.

Base salary is normally reviewed annually with changes effective from 1 April. It may be reviewed more

frequently or at different times of the year if the Committee determines this is appropriate.

Maximum opportunity Salary increases will normally be capped at the typical level of increases awarded to other employees in

the Company. However, increases may be above this level in certain circumstances, including but not

limited to:

• where a new Executive Director has been appointed to the Board at an initially lower base salary

with the intention that larger salary increases would be awarded for an initial period of time as the

Executive Director gains experience;

• where there has been a significant increase in the scope and responsibility of an Executive Director’s

role or where they have been promoted; and

• where a larger increase is considered necessary to reflect significant changes in market practice.

Performance measures When setting and reviewing salaries annually, the Remuneration Committee considers Executive

Directors’ performance to ensure that SSE fulfils its core purpose of providing energy needed today

and striving for a better world of energy for tomorrow. They should also assess delivery on SSE’s

strategic focus of creating value for shareholders and society from developing, operating and owning

energy and related infrastructure and services in a sustainable way.

174 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Directors’ Remuneration Policy continued

Pension

Purpose and link to strategy Pension planning is an important part of SSE’s remuneration strategy because it is consistent with the

long-term goals of the business.

The approach to pension supports the Company’s ability to retain experienced Executive Directors and

develop talent internally.

Operation The current Chief Executive and Finance Director participate in either the Southern Electric Pension

Scheme or the Scottish Hydro-Electric Pension Scheme, the same schemes which any employee

recruited at that time participates in. These schemes are funded final salary (subject to the cap on

future increases in pensionable pay described below) pension schemes. Where an Executive Director

is subject to the scheme-specific salary cap (which mirrors the provisions of the previous HMRC cap

arrangements) the Company provides top-up unfunded arrangements (“UURBS”) up to the maximum

benefit outlined below.

The current Chief Commercial Officer receives a cash allowance in lieu of accruing future pension

benefits. This allowance predates his appointment as an Executive Director and is in line with other

former defined benefit scheme members who have opted out. The Committee will operate alternative

pension provisions for new appointments to the Board, in line with arrangements for SSE employees.

The pension allowance is in the process of being aligned with those for other employees with a similar

service profile. From 1 April 2022, his pension allowance will be 20% of salary, reducing to 15% on

1 January 2023.

Maximum opportunity For existing Executive Directors, the pension arrangements provide for a maximum pension of two-

thirds of final salary, normally at age 60. From 1 April 2017, future pensionable pay increases will be

capped at RPI + 1% (regardless of the level of any actual increases in salaries).

For new appointments, employer’s pension contributions are capped in line with arrangements for all

new SSE employees (which is currently 12% of base salary).

Performance measures Not applicable.

Benefits

Purpose and link to strategy To provide a market-competitive level of benefits for Executive Directors.

Operation The objective is to provide the appropriate level of benefits taking into account market practice at

similarly sized companies and the level of benefits provided for other employees in the Company.

Core benefits currently include car allowance, private medical insurance and health screening.

Executive Directors are eligible to participate in the Company’s all-employee share plans on the

same terms as UK colleagues. The Company currently operates the Share Incentive Plan and the

Sharesave Scheme.

In the event that an Executive Director was required to relocate to undertake their role, the Committee

may provide additional reasonable benefits to reflect the relevant circumstances.

The Committee may introduce or remove particular benefits if it is considered appropriate to do so.

Travel and business-related expenses incurred which may be treated as taxable benefits will be

reimbursed in accordance with the Company’s expenses policy.

Maximum opportunity When determining the level of benefits the Committee will consider the factors outlined in the

“Operation” section. The cost will depend on the cost to the Company of providing individual items

and the individual’s circumstances and there is no maximum benefit level.

Performance measures Not applicable.

175SSE plc Annual Report 2022

Annual Incentive Plan (AIP)

Purpose and link to strategy In line with the need to achieve a suitable balance of fixed and variable remuneration, the purpose

of the AIP is to reward Executive Directors’ performance during the year, based upon achievement

of performance targets. The performance targets are linked to SSE’s strategy and core purpose.

Compulsory deferral into SSE shares provides alignment between Executive Directors’ interests and

the long-term interests of shareholders.

Operation The Committee determines the level of incentive at its absolute discretion taking into account

performance in each of the measures, the underlying performance of the business and Executive

Directors’ management of, and performance in, all of the business issues that arise during the year.

Performance is typically assessed over a financial year. Below threshold performance, no payment is

made. Where performance reaches or exceeds the maximum, 100% of bonus for this element is payable.

The award will normally be delivered:

• 67% in cash; and

• 33% in deferred shares.

The Committee may determine that a different balance of cash and deferred shares may be awarded.

Deferred shares will normally vest three years from the award date (unless the Committee determines

an alternative vesting period is appropriate) subject to continued employment with accrual of dividends

over that period. Until vesting, the awards may accrue additional dividend shares. Dividend equivalents

may be determined by the Committee on a cumulative basis and may assume reinvestment of dividends

in the Company’s shares.

In certain circumstances as set out in the plan rules the Committee may at its discretion apply malus

to outstanding awards under the AIP or unvested deferred share awards prior to the relevant vesting or

payment date, and/or claw back the cash or share portion of awards under the AIP for up to three years

after the cash payment date of the relevant award.

Maximum opportunity Maximum annual incentive opportunity is equal to 150% of base salary for the Chief Executive and 130%

of base salary for the Finance Director and Chief Commercial Officer.

Performance measures The annual incentive is normally based on a mix of financial, operational, strategic and stakeholder

measures reflecting the key values and priorities of the business. A minimum of 50% of the annual

incentive will be based on financial performance metrics. The Committee determines the exact metrics

each year depending on the key strategic objectives for the forthcoming year and ensures that they are

appropriately stretching in the context of the business plan. The measures for the current year are set

out on page 197 .

The Committee may review the detailed targets and weightings of measures year on year, as well as the

appropriate threshold levels of vesting and performance.

Around 50% of the incentive is paid if target levels of performance are delivered with the full incentive

being paid for delivering stretching levels of performance.

The part of the AIP that is deferred in the form of deferred shares or a career share award is not subject

to any further performance conditions.

176 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Performance Share Plan (PSP)

Purpose and link to strategy The purpose of the PSP is to reward Executive Directors, over a three-year performance period and a

further two-year holding period, for their part in delivering the sustained success of SSE and to ensure

that their interests are aligned with those of the shareholders who invest in the Company.

Operation Shares are awarded which normally vest based on performance over a period of three years. Awards

granted to Executive Directors will be subject to an additional two-year post-vesting holding period

during which time the Executive must retain the post-tax number of shares vesting under the award.

No vestings is possible for below threshold performance. The percentage of shares that vest at threshold

takes account of the toughness of the target and varies accordingly. All the shares vest if the maximum

performance standard is reached or exceeded.

The Committee shall determine the extent to which the performance conditions have been met. No

shares shall vest unless the Committee is satisfied with the underlying financial performance of the

Company. Awards do not vest until after the end of the performance period.

Until vesting, PSP awards may accrue additional dividend shares. Dividend equivalents may be

determined by the Committee on a cumulative basis and may assume reinvestment of dividends

in the Company’s shares.

In certain circumstances set out in the PSP rules the Committee may at its discretion apply malus to

outstanding awards prior to vesting and/or claw back vested awards for up to three years after the

vesting date of the relevant award.

The Committee may adjust and amend awards in accordance with the PSP rules.

Maximum opportunity The maximum annual value of award that can be granted under the PSP is up to 250% of base salary

for the Chief Executive and up to 225% of base salary for other Executive Directors. See also the share

ownership policy requirement.

Performance measures The Committee determines targets each year to ensure that they are stretching and represent value

creation for shareholders while remaining realistically achievable for management.

Awards vest based on a range of measures which may include total shareholder return, financial,

operational, strategic or stakeholder-based measures. A minimum of 70% of the award will be based

on financial and total shareholder return measures. The Committee will review the most appropriate

measures, detailed targets and weightings of measures year on year, as well as the appropriate threshold

levels of vesting and performance.

Share Ownership Policy

Purpose and link to strategy A key element of SSE’s remuneration policy is to align the interests of Executive Directors with those of

shareholders who invest in the Company.

Operation Shareholding is normally built up via shares vesting through the PSP, deferred shares from the AIP and

all employee share schemes and Executive Directors may also choose to buy shares.

The requirement to retain shares continues after employment, and Executive Directors are required to

hold their in-employment shareholding for a further two years following cessation of employment.

Maximum opportunity Executive Directors are expected to maintain a shareholding. This is linked to the level of the annual

award under the PSP. The requirement will be met through career shares unless awards under the PSP

exceed 200% of salary. Where PSP levels exceed 200% of salary the holding requirement will be 250% of

base salary in the case of the Chief Executive and 225% in the case of other Executive Directors built up

within a reasonable timescale.

Performance measures Not applicable.

Directors’ Remuneration Policy continued

177SSE plc Annual Report 2022

Chair and Non-Executive Directors’ Fees

Purpose and link to strategy Fees are set at a level which provides reward for undertaking the role and are sufficient to attract and

retain individuals with the calibre and experience to contribute effectively at Board level.

Operation The Committee is responsible for determining fees for the Chair. The Board is responsible for

determining fees for other non-Executive Directors.

Fees are reviewed at appropriate intervals against companies of a similar size and complexity. Fees are

set in a way that is consistent with the wider remuneration policy.

The fee structure may be made up of:

• a basic Board fee or Chair fee;

• an additional fee for any committee chairship or membership; and

• an additional fee for further responsibilities e.g. Senior Independent Director, non-Executive Director

for Employee Engagement or periods of increased activity.

Non-Executive Directors do not participate in the Annual Incentive Plan, Deferred Bonus Scheme or any

of the share schemes, or contribute to any group pension scheme.

Non-Executive Directors do not currently receive any benefits. Benefits may, however, be provided

in the future for non-Executive Directors if in the view of the Board this was considered appropriate

and they may also be provided in the future for the Chair if in the view of the Committee this was

considered appropriate.

Reasonable travelling and other expenses for costs incurred in the course of the non-Executive

Directors undertaking their duties are reimbursed (including any tax due on the expenses).

It is also expected that all non-Executive Directors should build up a minimum of 2,000 shares in

the Company.

Maximum opportunity The aggregate level of non-Executive Director fees shall not exceed the maximum limit set out in

the Articles of Association.

Performance measures There are no direct performance measures relating to Chair and non-Executive Director fees, although the

performance of the Board is subject to annual evaluation, including an evaluation of individual members.

Performance measures and targets

The Committee sets a range of performance measures linked to Executive Directors’ remuneration that are simple, transparent and balanced.

They all have a clear link to strategic objectives and support value creation for shareholders. Performance targets will be stretching and

maximum performance will only be attained for true out-performance. The longer-term financial targets set for the awards under the

Performance Share Plan will be reviewed and set in the light of the relevant business plan. Where possible, targets will be disclosed

prospectively unless commercial sensitivity precludes this, in which case they may be disclosed at an appropriate time retrospectively.

Committee discretion

All incentive awards are subject to the terms of the relevant plan rules under which awards are made. The Committee may adjust or

amend awards in accordance with the provisions of the relevant plan rules. This includes, but is not limited to, the following discretions:

• In the event of a variation of the Company’s share capital or reserves, or a demerger, special dividend, rights issue or other event,

the number of shares subject to an Award and/or any performance condition attached to Awards, may be adjusted.

• The Committee may adjust PSP performance conditions for subsisting awards as it considers appropriate to take account of any

factors which are relevant in the opinion of the Committee, for example to reflect modifications of accounting standards.

• In the event of a voluntary winding-up of the Company, the Committee may allow some or all of the outstanding PSP awards

to vest (and be deemed exercised) on the date the resolution for the winding-up is passed.

The Committee may make minor changes to this Policy (for example for regulatory, exchange control, tax or administrative purposes or

to take account of a change in legislation or corporate governance requirements or guidance) without seeking shareholder approval for

that amendment.

178 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Legacy commitments

The Committee reserves the right to make any remuneration payments and payments for loss of office (including exercising any

discretion available to it in connection with such payments) notwithstanding that they are not in line with the Policy set out in this report

where the terms of the payment were agreed:

(i) before 17 July 2014 (the date the Company’s first shareholder approved Directors’ Remuneration Policy came into effect),

(ii) before this Policy came into effect provided that the terms of the payment were consistent with the shareholder-approved Directors’

Remuneration Policy in force at the time they were agreed or,

(iii) at a time when the relevant individual was not a Director of the Company and, in the opinion of the Committee, the payment was not

in consideration for the individual becoming a Director of the Company.

As well as remuneration payments and payments for loss of office under the Directors’ Remuneration Policy which was approved by

shareholders on 17 July 2014, this includes commitments relating to the defined benefit pension arrangements which were made before

27 June 2012. “Payments” includes the Committee sanctioning awards of variable remuneration and an award over shares is “agreed” at

the time the award is granted. Any payments made outside of the Directors’ Remuneration Policy pursuant to legacy commitments will

be disclosed in full in the relevant year’s Annual Report.

Directors’ service contracts and non-Executive Directors’ letters of appointment

Current Executive Directors have service contracts terminable by the Company immediately without notice upon breach by the

individual or by the Company giving to the individual 12 months’ notice or, at its discretion, payment in lieu of salary only during that

notice. The payment in lieu of notice may be made in staged payments and may either reduce or cease completely where the departing

Executive Director gains new employment. The Executive Director may terminate the contract by giving the Company 12 months’ notice.

Contracts for new Executive Directors will be limited to 12 months’ notice by both parties (or payment in lieu of notice in respect of

the Company). The service contracts are available to view at the Company’s registered office.

The non-Executive Directors have letters of appointment, and are appointed for fixed terms of three years, subject to retirement and

re-appointment at AGMs. Non-Executive Directors on termination are not entitled to any payment in lieu of notice or any compensation

for loss of office.

The letters of appointment are available for shareholders to view on www.sse.com .

Loss of office policy

The Committee takes a number of factors into account when determining leaving arrangements for Executive Directors:

• The Committee must satisfy any contractual obligations provided they are consistent with the Policy or have been entered into on a

date on or before 27 June 2012 in accordance with relevant legislation.

• The treatment of outstanding share awards is governed by the relevant share plan rules, as set out below.

• The Committee may determine that the Executive Director should receive reasonable outplacement support and legal advice at the

expense of the Company and any payments required by statute.

• The Company may at its discretion terminate any Executive Director’s contract by providing notice or payment in lieu of notice (as set

out above).

AIP

The Executive Director may, at the discretion of the Committee, remain eligible to receive an AIP award for the financial year in which they

ceased employment if the Committee has decided that good leaver terms should apply. Any such AIP award will be determined by the

Committee taking into account time in employment and performance. If an AIP award is received in such cases it may not be subject to

deferral into deferred shares provided the post-employment share ownership policy has already been fulfilled or will be by other means.

Deferred and career shares

If an Executive Director’s employment terminates in circumstances such as death, injury, disability, ill-health (as agreed by the Committee)

or other circumstances that the Committee deems appropriate, unvested deferred and career shares shall vest in full at the time of

termination of employment.

If an Executive Director leaves the business in other circumstances their deferred shares and unvested career shares shall lapse. Vested

career shares shall not lapse.

Vested awards in the form of career shares awarded under previous Directors’ Remuneration Policies shall, except in the case of death or

change of control, be released two years after the date of cessation of employment, irrespective of the reason for such cessation.

Directors’ Remuneration Policy continued

179SSE plc Annual Report 2022

Performance share plan

If an Executive Director’s employment terminates in circumstances such as death, injury, disability, ill-health (as agreed by the

Committee) or other circumstances that the Committee deems appropriate, PSP shares may continue to vest. The PSP shares will

normally be reduced to reflect the time elapsed in the three-year performance period when the Executive Director’s employment ends

and will normally remain subject to performance at the end of the performance period.

The Committee may determine, in exceptional circumstances, that PSP shares may be released at the time of cessation of employment.

In this circumstance, it will determine the level of vesting taking into account the extent to which the performance conditions have been

met at the time (subject to modification if the Committee considers that the performance condition would be met to a greater or lesser

extent at the end of the original performance period) and the period the Executive Director has been in employment.

The Committee has the discretion to disapply time pro-rating or alter the time pro-rating fraction if it considers that the Executive

Director’s contribution to the business of the Company would not otherwise be properly recognised. In this circumstance, the vesting of

PSP shares would remain subject to performance until the end of the performance period.

If the Executive Director’s employment ends for any other reason, unvested PSP share awards will lapse. Vested PSP shares which are

subject to a mandatory holding period will not lapse as a result of cessation of employment for any reason.

Pension

When an Executive (including Executive Directors) who participate in the defined benefit pension scheme retire through ill-health they

are entitled to an unreduced pension based on service to expected retirement.

In the event of any reorganisation or redundancy, Executives who are aged 50 or more with at least five years of service will be provided

with an unreduced accrued pension. If an Executive has not reached age 50 at the time of this event their pension will be paid from age 50.

From age 55 Executives are entitled to leave the Company and receive a pension, reduced for early payment, unless the Company gives

consent and funds the pension being paid on an unreduced basis.

Dependent upon the circumstances surrounding the departure of the Executive Director and the financial health of the Company at

the time, the Committee’s policy is to give consideration to a cash commutation of the UURB pension at the time of leaving. Any cash

commutation would limit SSE’s liability, taking into account valuations provided by independent actuarial advisors, and would be undertaken

on what was judged by the Committee to be on a cost neutral basis to SSE.

The following is information relating to the pension of Gregor Alexander as a participant in the HMRC-approved Scottish Hydro- Electric

Pension Scheme the terms of which also apply to the UURBS arrangement.

(i) Dependants’ pensions on death are half of the member’s pension entitlements, together with a capital sum equal to four times

pensionable pay. On death in retirement, the Executive Director’s spouse will receive a pension equal to half of that payable to the

Director. In addition, on death within the first five years of retirement, a lump sum is payable equal to the balance outstanding of the

first five years’ pension payments

(ii) Post retirement increases are expected to be in line with RPI.

The following is information relating to the pension of Alistair Phillips-Davies, as a participant in the HMRC approved Southern Electric

Group of the Electricity Supply Pension Scheme, the terms of which also apply to the UURBS arrangement.

(i) Dependants’ pensions on death are four-ninths of the member’s pensionable pay, together with a capital sum equal to four times

pensionable pay. If death occurs after attaining the age of 55 an additional lump sum between three to five times notional pension

is payable dependent upon age and length of service.

(ii) On death in retirement, the Director’s spouse will receive a pension equal to two-thirds of that payable to the Director. In addition, on

death within the first five years of retirement, a lump sum is payable equal to the balance outstanding of the first five years’ pension

payments.

(iii) Post retirement increases are expected to be in line with RPI (guaranteed up to the level of 5% per annum and discretionary above

that level).

Other arrangements

If buyout awards are made on recruitment, the treatment on leaving would be determined at the time of the award.

For all-employee share plans, such as the Sharesave Scheme and the Share Incentive Plan, leavers will be treated in accordance with the

HMRC approved plan rules.

Change of control

On a change of control, Executive Directors’ awards will be treated in accordance with the rules of the applicable plan(s). In summary,

in the event of a change of control of the Company, performance in the PSP will be measured to that date subject to modification if the

Committee considers that the performance conditions would be met to a greater or lesser extent at the end of the original performance

period. Awards will normally be scaled down to reflect the period up to the change of control, but the Committee has discretion to dis-

apply or alter the pro-rating fraction if it considers that participants’ contribution to the creation of shareholder value during the

performance period would not otherwise be properly recognised.

180 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Any outstanding unvested deferred or career shares from the AIP will vest automatically, and any vested shares subject to a holding

period will be released.

Recovery provisions

The Committee believes that it is right that it should have the ability to recover pay in circumstances where that pay is later proved to

have been unfairly earned. The PSP and AIP have recovery provisions under malus and clawback.

Malus is the ability to reduce or cancel unvested deferred AIP and PSP share awards. Clawback is the ability to take back value delivered

through the cash element of AIP or vested AIP awards at any point: up to three years post-payment of cash under the AIP; and up to

three years post- vesting of PSP shares. They would apply under the following circumstances at any point between the grant date and

vesting date:

• Material misstatement or restatement of accounts

• Misconduct which results in a materially adverse financial effect

• Serious reputational damage including material environmental or safety issue, or material operational or business failing

• Factual error in calculating payment/vesting

• Serious misconduct

• Corporate failure

• Material risk failure

• Material detriment to stakeholders or to company’s market reputation

• Unreasonable failure to protect stakeholders’ interests

Recruitment policy

The Committee will seek to align the remuneration package offered with its Directors’ Remuneration Policy outlined on page 172 .

The overriding objective in determining a total remuneration package for a new recruit would be to make decisions which are in the best

interests of the Company, its shareholders and other stakeholders.

Base salary would be set taking into account the individual’s skills and experience and performance, salary levels at other similar sized UK

companies and other energy businesses, remuneration of different groups of employees, and the wider internal pay arrangements.

The Committee will determine appropriate pension provision for any new Executive Director. When determining pension arrangements

for new external appointments the Committee will limit contributions to those in line with employees generally, currently 12% of salary.

Variable incentive levels will be in line with those set out in the policy table, with the maximum being no more than the current Chief

Executive (AIP 150% of salary, PSP 250% of salary). Whilst it would generally be intended to set consistent performance measures across the

executive team, depending on the timing and circumstances of a new appointment, it may be necessary to set alternative measures for the

initial awards. PSP awards may be granted shortly following an appointment, subject to the Company not being in a closed period.

The Committee may make awards on appointing an Executive Director to “buy out” remuneration arrangements forfeited on leaving a

previous employer. In doing so the Committee will take account of relevant factors including any performance conditions attached to

these awards, the form in which they were granted (e.g. cash or shares) and the time over which they would have vested. Generally

buy-out awards will be made on a comparable basis to those forfeited. To facilitate these awards, the Committee may make awards

under Company incentive plans and other available structures.

The Committee may make awards under SSE’s incentive plans and under the Listing Rules exemption in LR9.4.2 which allows Companies

to make grants to a Director to facilitate, in unusual circumstances, the recruitment or retention of that Director. The use of the latter

shall be limited to the granting of buy-out awards or share awards within the limits described above.

Shareholders’ views

The Committee Chair, on behalf of the Committee, consulted with SSE’s largest shareholders in developing the new Policy, as well as

representatives from The Investment Association. This included a number of meetings which allowed a discussion of the proposals in the

context of SSE’s business strategy and the environment in which it operates. The feedback received was extremely helpful in informing

the Committee’s decisions. The Committee adopted its proposals following input from shareholders. The weighting of financial and

non-financial measures in the PSP is one example. The balance of quantative and qualitative measures and targets is another.

More generally, the Committee Chair, on behalf of the Committee, periodically undertakes consultation with a number of institutional

shareholders regarding a broad range of remuneration issues. The Committee finds such consultation meetings a valuable opportunity

to receive feedback on the work of the Committee and the key issues that it is considering. The feedback received is extremely helpful in

informing the Committee’s decisions.

In addition, the Committee also monitors the views of other stakeholders and broader developments in executive remuneration generally.

Directors’ Remuneration Policy continued

181SSE plc Annual Report 2022

Remuneration engagement across the Company

The Committee appreciates the importance of an appropriate relationship between the remuneration levels of the Executive Directors,

senior executives, managers and other employees within the Company although comparison metrics are not used to determine pay

policy. Remuneration at all levels in SSE is designed to support its remuneration principles, long-term business strategy and core purpose

of providing the energy people need in a reliable and sustainable way. It is also designed to be consistent with and support the Company’s

core values of Safety, Service, Efficiency, Sustainability, Excellence and Teamwork. The structure of reward necessarily differs based on

scope and responsibility of role, level of seniority and location.

The table in the At a Glance Section (page 182 ) illustrates how the core elements of executive pay align with the wider workforce.

In summary,

• The senior management population also participate in annual and long-term incentive arrangements. In line with Executive Directors’

arrangements, incentives for senior management have an emphasis on share awards and the performance metrics support those

used at Board level.

• All employees have the opportunity to be share owners through the Share Incentive Plan and the Sharesave Plan and those

participating are able to express their views in the same way as other shareholders.

• Pension planning is an important part of SSE’s reward strategy for all employees because it is consistent with the long-term goals and

horizons of the business, an approach it has been practising for a number of years. The terms of the funded final salary pension

schemes apply equally to all members.

• As part of its Employee Engagement Survey SSE invites all employees to provide a view on the benefits and pay that it provides.

The Remuneration Committee is responsible for the remuneration of SSE’s most senior Executives and the Chair of the Board and

reviews the remuneration arrangements for all employees across the Group.

The Chair of the Remuneration Committee meets at least annually with SSE’s recognised Trade Unions to discuss SSE’s position on

executive remuneration. They met in May and discussed aspects of policy explained in this report. Feedback from this meeting was

shared with the Remuneration Committee.

Illustration of the Directors’ Remuneration Policy for 2022/23

The charts below indicate a forward-looking potential single figure of remuneration value for 2022/23 at below threshold, target and

maximum for each of the Executive Directors. With the increase in base salaries in 2022 and the proposed increase to PSP quantum the

scenarios below have increased from the previous year.

1,00

2,00

3,00

4,00

5,00

7,00

6,00

£000s

22%

21%

22%

36%

46%

36%

35%

45% 35%

37%

47% 36%

22%

27%

22%

20%

26% 20%

21%

27% 21%

100% 42% 27% 21%

100% 45% 29% 23%

100% 42% 26% 21%

%12 %12 %12 %12

Below

threshold

Target MaxMax + 50%

share price

Below

threshold

Target MaxMax + 50%

share price

Below

threshold

Target MaxMax + 50%

share price

Single total figure of remuneration – an illustration of the application of our policy

Chief Executive Finance Director Chief Commercial Officer

Total fixed AIP LTIP Share price growth

182 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Directors’ Remuneration Policy in 2022/23

The illustration below shows how SSE intends to operate its Directors’ Remuneration Policy in 2022/23.

Element Max 2022/23 2023/24 2024/25 2025/26 2026/27 2027/28

Fixed pay

Salary Set with

reference to

pay increases

for the wider

employee base

Salary paid

Benefits Market

competitive

Benefits paid

Pension Final salary and

top up/pension

allowance

Pension

accrual/

allowance paid

Variable

pay –

at risk

Annual

Incentive Plan

(AIP)

CEO 150%

of salary.

FD and CCO

130% of salary

67% cash/33%

deferred shares

Performance

period

AIP cash paid

AIP deferred

share awards

granted

Vesting period Awards vest

Performance

Share Plan (PSP)

CEO 250%

of salary.

FD and CCO

225% of salary

2-year holding

period

PSP awards

granted

Performance/vesting

period

PSP awards

vests

Holding period Holding

period ends

Additional

governance

ownership

requirement

250% of salary

for CEO and

225% of salary

for FD and CCO

Share ownership requirement

Recovery and

withholding

All incentives Malus and clawback: Material misstatement or restatement of accounts; Misconduct which results in a

materially adverse financial effect; Serious reputational damage including material environmental or

safety issue, or material operational or business failing; Factual error in calculating payment/vesting;

Serious misconduct; Corporate failure; Material risk failure; Material detriment to stakeholders or to

company’s market reputation; Unreasonable failure to protect stakeholders’ interests

Post-

employment

Career shares Holding requirement for career shares until two years after cessation of employment

Strategic performance

Executive Directors’ remuneration is strongly linked to strategic performance. Some of SSE’s strategic performance measures are

detailed below, with an indication of how they link to remuneration. SSE has delivered against its dividend target and performed well

against a range of financial and non-financial measures. Full details can be seen on pages 186 to 189 .

ADJUSTED EARNINGS PER SHARE

95.4p

AIP and PSP

TOTAL SHAREHOLDER RETURN

(FTSE 100)

Rank 13

of 95 PSP

(66.6%)

EMPLOYEE ENGAGEMENT

82%

Engagement index score

AIP (Stakeholders)

CARBON INTENSITY OF

ELECTRICITY GENERATED

258gCO

kWh

gCO

e per kWh. AIP (Sustainable

Development Goals)

DIVIDENDS PER SHARE

85.7p

AIP and PSP

TOTAL SHAREHOLDER RETURN

(MSCI)

Rank 6

of 23 PSP

(66.6%)

TOTAL RECORDABLE

INJURY RATE

0.17

per 100,000 hours worked

AIP (Stakeholders)

TOTAL RENEWABLE GENERATION

OUTPUT*

9.5TWh

GWh. AIP (Sustainable

Development Goals)

Remuneration at a glance

* The 2030 Goal for 2021/22 measured progress based on electricity generation GHG emissions only. SSE’s new science-based target for GHG emissions intensity,

set in November 2021, is based on all scope 1 GHG emissions. Progress on page 54  is provided against this updated target, therefore figures differ slightly.

** Includes pumped storage, biomass and constrained off wind in GB.

183SSE plc Annual Report 2022

How Pay Links to Wider SSE Workforce

Base Salary Benefits Pension Short-Term Incentive Long-Term Incentive

Executive Directors

Base salary is

typically set with

reference

to the market and

wider workforce

considerations.

Annual increases are

typically in line with

or less than the wider

employee population.

A range of voluntary

benefits in line with

the wider workforce

plus contractual car

and private medical

benefits.

All employees are

a member of the

SHEPS or SEPS

defined benefit

pension scheme,

or the Pension+

defined contribution

scheme unless

they have opted

or cashed out.

The arrangements

are diverse and

the employer cost

typically ranges from

3% to 38% of salary

when both defined

contribution and

defined benefits

schemes are taken

into account.

Annual Incentive

Plan linked directly

to business

performance –

50% financial,

50% non-financial.

33% of the total

award is deferred

into shares for

three years.

The Performance

Share Plan is a

share award with

performance

linked to strategic

performance

measures.

Group Executive

Committee

Annual Incentive

Plan considering

performance of the

Group (directly linked

to the above), the

business area and

the individual. 25%

of the total award is

deferred as shares

for three years.

The Leadership

Share Plan is also

linked to strategic

performance

measures over the

longer-term and

those with direct

impact on strategic

output are eligible.

Senior Management

Wider Workforce

Base salary levels

are subject to

negotiation with

recognised trade

unions and/or are set

in line with market

requirements.

Annual increases

are subject to

negotiation.

A range of voluntary

benefits are available

to all employees, such

as a cycle to work

scheme, a holiday

purchase scheme,

health benefits, and

enhanced maternity,

paternity and

adoption leave.

Depending on

role, a proportion

of employees will

participate in the

Annual Incentive

Plan (as above).

100% of the award

is paid in cash.

All employees may

participate in the

Share Incentive

Plan (SSE matches

three shares for

every three bought)

and the Sharesave

(SAYE) plan.

83%

100%

17%

20%

12%

15%

14%

15%

10%10%10%

25%

30%

Adjusted

EPS

Cashflow DPS Personal Total

(% of

maximum)

Sustainable

development

goals

Stakeholders

66%

100%

20%

19%

20%20%20%20%20%

TSR v

FTSE100

TSR v

MSCI

Europe

EPS

growth

DPS

growth

Total

(% of

maximum)

Customer

Maximum

Actual

ANNUAL INCENTIVE PLAN PERFORMANCE SHARE PLAN

Incentive Plan Performance in 2021/22

184 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

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 2022

relative to the previous year.

Alistair Phillips-Davies Gregor Alexander Martin Pibworth Total

2021/22

£000s

2020/21

£000s

2021/22

£000s

2020/21

£000s

2021/22

£000s

2020/21

£000s

2021/22

£000s

2020/21

£000s

Fixed Pay Base Salary

924 915 714 707 636 571 2,274 2,193

Benefits

26 25 23 22 18 18 67 65

Pension

413 458 303 344 159 171 875 973

Total Fixed Pay 1,363 1,398 1,040 1,073 813 760 3,216 3,231

Variable Pay AIP

1,150 947 771 634 678 512 2,599 2,093

PSP

1,972 700 1,334 473 998 354 4,304 1,527

Total Variable Pay 3,122 1,647 2,105 1,107 1,676 866 6,903 3,620

Total

4,485 3,045 3,145 2,180 2,489 1,626 10,119 6,851

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 2020/21 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 2021/22 is based on the average share price in the three months to 31 March 2022 of £16.165, as required by the

reporting regulations. The award remains subject to service until May 2022 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. There was no share price appreciation.

6 Directors have not received any other items in the nature of remuneration other than as disclosed in the table.

Rationale for 2021/22 single total figure of remuneration

There has been a year-on-year increase of 48% in the single total figure of remuneration. For the Executive Directors, remuneration

has increased between 44% and 53%. This change is attributable to an increase in base salary aligned to the wider workforce, and an increase

in AIP/PSP outcomes following a year of strong financial, operational and strategic performance. The PSP, in particular, has performed well.

The share price has also increased by 27% in the year to 31 March 2022 and TSR, over the three years to the end of March 2022, has increased

by over 66%.

The Remuneration Committee is satisfied that the total single 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

2021 by 1% from £914,776 to £923,924 for the Chief Executive, from £707,047 to £714,117 for the Finance Director and from £630,000

to £636,300 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

range from 32.5% to 37.5% 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 would not be used for any new external appointments.

Annual report on remuneration

185SSE plc Annual Report 2022

The Chief Executive and Finance Director, in common with all other employees who joined at the same time (25 and 31 years ago

respectively), have the following pension provisions relating to leaving the Company:

• for retirement through ill-health an unreduced pension based on service to expected retirement is paid;

• in the event of any reorganisation or redundancy an unreduced accrued pension is paid to a member who is aged 50 or above, with at

least five years’ service or, for a member who has not yet reached that age, it will be payable with effect from 50;

• and from the age of 55, a scheme member is entitled to leave the Company and receive a pension, reduced for early payment, unless

the Company gives consent and funds this pension on an unreduced basis.

Dependent on the circumstances surrounding the departure of the Executive Director and financial health of the Company at the time,

the Committee’s policy is to give consideration to a cash commutation of the unfunded unapproved retirement benefit (UURB) pension

at the time of leaving. Any cash commutation will limit SSE’s liability, taking into account valuations provided by independent actuarial

advisors, and will be calculated on what was judged to be a cost neutral basis to SSE.

The Chief Commercial Officer, who has been with SSE since 1998, was already in receipt of a pension allowance of 30% of salary prior to

his appointment as an Executive Director. While the arrangement was consistent with the approach used for all other members who have

elected to receive a cash allowance in lieu of accruing future pension benefits, the Committee agreed that his future pension arrangements

would be aligned with the level of contributions available to the wider workforce at 15% of salary on a phased basis over five years.

Following confirmation of his expanded role from 1 November 2020, it was agreed that the phased reduction would be accelerated by two

years. As part of the revised directors’ remuneration policy, this change has again been accelerated. This means that his pension allowance

will be in line with the employer contribution for the majority of SSE’s employees taking into account length of service of 15% of salary from

1 January 2023.

The table below details pension accrued for each of the Executive Directors as at 31 March 2022 and 2021.

Accrued

pension as at

31 March 2022

£000s

Accrued

pension as at

31 March 2021

£000s

Alistair Phillips-Davies 513 489

Gregor Alexander 461 443

Martin Pibworth

0 0

1 Martin Pibworth received an allowance in lieu of a pension contribution of 25% of salary.

186 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Annual report on remuneration continued

Annual Incentive Plan and Performance Share Plan

In setting targets and assessing performance, the following process is used for both the AIP and PSP:

1. Set performance

measures aligned

with strategy

2. Set stretching

performance

targets

3. Assess

performance

4. Take account

of wider

environment and

stakeholders

5. Apply discretion

if required

2021/22 Annual Incentive Plan

1. Set performance measures aligned with strategy

AIP requires broad performance across a number of financial metrics (Adjusted EPS, DPS Growth and Cashflow) and strategic metrics

(Personal, Stakeholders and Sustainable Development Goals). The performance measures and their weightings are shown below.

Financial

(50%)

Stakeholders

(15%)

Sustainable Development Goals

(20%)

Personal

(15%)

Adjusted

EPS

(30%)

Cashflow

(10%)

DPS

(10%)

Customers

(5%)

Employees

(5%)

Suppliers

(5%)

Carbon

Intensity

(5%)

Renewable

Output

(5%)

Elective

Vehicle

Infrastructure

(5%)

Fair Tax &

Living Wage

(5%)

Individual

Objectives

(15%)

2. Set stretching performance targets

The financial performance targets were set at the start of the financial year taking into account internal financial plans, external consensus

where it exists and the expected impact of identified opportunities and threats to the business in the context of wider economic conditions.

The performance target range is set on a realistic basis but requires true outperformance for Executive Directors to achieve the maximum.

The Remuneration Committee has a history of setting challenging targets, evidenced by the average AIP payout of 54% since 2012 as

shown on page 193 .

3. Assess performance

The table below shows how performance measures are linked to strategy and how performance was ultimately delivered.

Performance measure

AIP Adjusted EPS Cashflow DPS Personal Stakeholders

Sustainable

development goals Total

Link to strategy Simple

Stewardship

Stakeholders

Simple

Sustainable

Stakeholders

Simple

Sustainable

Stakeholders

Simple

Sustainable

Stewardship

Stakeholders

Simple

Sustainable

Stewardship

Stakeholders

Simple

Sustainable

Stewardship

Stakeholders

Rationale Underlying

measure of

financial

performance

Net debt/

EBITDA

Return on

investment

through

payment of

dividends

To reflect those

activities which

go beyond the

responsibilities

of the role

Customers,

employees and

suppliers

Contribution

to the four UN

SDGs for 2030

Weighting 30% 10% 10% 15% 15% 20%

Threshold 85.8p 5.0 85.7p

Max 99.4p 4.5 93.8p

Outcome 95.4p 4.3 85.7p

See next section

Performance 82% 100% 50% 92% 78% 86%

Outturn

(% of max

incentive)

25% 10% 5% 14% 12% 17% 83%

The Committee generally sets non-financial measures and targets that are specific, measurable, attainable, relevant and timely (‘SMART’

objectives) but also recognises that important measures and targets in support of the Company’s vision, purpose and strategy may

require some subjective assessment, and this is done by the Committee following the input from the wider Board and other Board

Committees as appropriate. The Committee is committed to providing as much retrospective detail of the measures as possible, setting

out clearly the decision-making process and the levels of attainment achieved, but mindful that any information which could be

considered commercially sensitive cannot be disclosed.

187SSE plc Annual Report 2022

The tables below and on the following pages provide detail on each of the non-financial measures and the assessment of performance

against each one.

High-level

measure

Detailed

measure Factors to be assessed Summary performance Assessment

Outcome

(% of max)

Personal

15%

Chief

Executive

Culture and the SSESET,

Financial, People

Development, Succession,

Stakeholder Management,

Strategy and Growth

Strong year for the Executive Directors Positive activity

around net zero strategy, COP26 and on the Net Zero

Acceleration Plan, continued strong progress made on

disposals and good underlying business performance

during the ongoing pandemic despite a difficult year

with the weather. International acquisitions made during

the year and more in the pipeline.

3 3 3

91%

Finance

Director

90%

Chief

Commercial

Officer

89%

x= Below expectation

3= Met expectation 33= Exceeded expectation 333= Far exceeded expectation

High-level

measure Detailed measure Factors to be assessed Summary performance Assessment

Outcome

(% of max)

Stakeholders

15%

Customers

2.5%

Business Energy – A range of

measures including customer

complaints and satisfaction. Gateway

for threshold performance at median

performance of Citizens Advice

league table.

Currently sitting at 6th out of 17 suppliers

in Citizen’s Advice Non-Domestic

League Table.

3 3 3

60%

2.5% Electricity Networks – A range

of measures including customer

interruptions and customer

minutes lost.

Margin between performance in the

North v South. Improvement plan in

place for the South. In overall DNO

Customer Performance league table

SHEPD sat 8/14 and SEPD at 14/14.

Dealt with unprecedented level of

storms handling a typical year’s worth

of calls in 5 months.

40%

Employees

2.5%

Safety – Total Recordable Injury

Rate (TRIR) and Accident Frequency

Rate (AFR) for direct employees.

TRIR target of <0.15.

Similar strong results to last year at

this year-to-date with TRIR up slightly

(0.09 v 0.08) and AFR the same at 0.04.

Overall TRIR slightly up at year end

with significant increase in hours worked.

3 3 3

90%

2.5% Engagement – A range of measures

including employee engagement

survey score, employee uptake

of share plans and retention rate.

Board and leadership engagement

with employees.

Very strong set of results for 2021

with key Sustainable Engagement Index

indicator ahead of sector norm and at

82%, 8% up from 2019. Connection to

Strategy up 18% at 85%. Strong employee

survey and verbatim feedback around

flexible working and company’s COVID

response.

3 3 3

95%

2.5% Inclusion and diversity – progress

made closing SSE’s median UK

gender pay gap and progress made

against SSE’s Inclusion Strategy

including progress on Return

on Inclusion.

Return on Inclusion champion status

retained with improved index score from

75.5 to 83.3. Inclusive hiring measures up

in all categories (open advertising, flexible

working, diverse panels and gender

diverse shortlist. Increased female

representation in talent programmes

averaging at 40%. Positive increases in

diversity questions in GPTW survey.

Increase in number of female leavers

year-on-year currently being looked into,

GPG median down slightly and more

women receiving performance bonus.

3 3 3

85%

Suppliers

2.5%

Safety – Total Recordable Injury Rate

(TRIR) and Accident Frequency Rate

(AFR) for contractors.

TRIR the same as last year at 0.32 and

AFR (0.14 v 0.19) improved significantly.

3 3 3

95%

x= Below expectation

3= Met expectation 33= Exceeded expectation 333= Far exceeded expectation

188 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Annual report on remuneration continued

High-level

measure Detailed measure Factors to be assessed Summary performance Assessment

Outcome

(% of max)

Contribution

to the UN

Sustainable

Development

Goals

20%

(see the

Sustainability

Report )

Climate action

(5%):

Take urgent action

to combat climate

change and its

impacts

Reduce the carbon intensity

of electricity generated by

60% by 2030, compared to

2017/18 levels, to around

120gCO

e/kWh.

The carbon intensity of electricity

generated increased by 1.2% in 2021/22.

Planned and unplanned outages in

Thermal Generation and extremely

low wind and rain in North of Scotland

led to a reduction in overall output.

Correspondingly GHG emissions from

electricity generation fell by 19%. Keadby

2, expected to be the most efficient

CCGT station in Europe, on track

to be online by end 2021. Keadby 3

progressing well through planning.

SSE set updated science-based carbon

targets in November 2021, aligned to a

1.5°C pathway. As a result, this goal has

been increased to a reduction of 80%

(from 60%) from 2022/23 onwards.

3 3

90%

Affordable and

clean energy (5%):

Affordable, reliable

and sustainable

energy for all

Develop and build by 2030

more renewable energy to

contribute renewable output

of 30TWh a year.

Renewable generation output (inc.

biomass, pumped storage and

constrained off wind in GB) fell in the

year due to unfavourable weather

conditions. However, excellent progress

was made on key offshore projects,

including reaching financial close on

Dogger Bank C and construction

progressing well at Seagreen and Dogger

Bank A and B. SSE Renewables, along

with partners, also won rights to develop

what will become one of the world’s

largest floating offshore wind farms in

the January ScotWind leasing round.

3 3 3

90%

Industry,

innovation and

infrastructure (5%):

Build resilient

infrastructure,

promote inclusive

and sustainable

industrialisation and

foster innovation

Build electricity network

flexibility and infrastructure that

helps accommodate 10 million

electric vehicles in GB by 2030.

SSEN Distribution published its RIIO-ED2

business plan with key goal to facilitate

connection of 1.3m EVs by 2028. It has

progressed a number of key projects

to support low-carbon technology

solutions, including several ongoing

strategic initiatives and partnerships in

this area. 30% of SSE’s car fleet now fully

electric with emissions down by 21%.

Employee EV salary sacrifice car scheme

launched so that every employee will

have access to a fully electric car.

3 3 3

85%

Decent work and

economic growth

(5%): Promote

sustained, inclusive

and sustainable

economic growth,

full and productive

employment and

decent work for all

Be the leading company in the

UK and Ireland championing

Fair Tax and a real Living Wage.

SSE maintained its Fair Tax Mark

accreditation for the eighth consecutive

year and published its Talking Tax 2021

report. Living wage increased in line

with real Living Wage rate increase

and from April now has Living Hours

accreditation. Work has begun to roll the

new accreditation out in its supply chain.

Goal in this area has been reviewed in

21/22, broadening it to encompass

a just transition.

3 3 3

80%

x= Below expectation

3= Met expectation 33= Exceeded expectation 333= Far exceeded expectation

189SSE plc Annual Report 2022

4. Take account of wider environment

The Remuneration Committee believes that the range of measures used in the AIP ensures that performance is assessed using a balanced

approach, without undue focus on a single metric which could be achieved at the expense of wider initiatives. AIP outturns for the wider

employee population were also taken into account by the Committee.

AIP earned for each of the Executive Directors is shown in the table below. The total award is made up of 67% cash and 33% which is deferred

into shares and vests after three years.

5. Apply discretion if required

The Committee considers the outcomes in the light of SSE’s performance in the round and pay principles. While mindful of current cost of

living pressures the Committee felt that the reward was reflective of performance and decided that no further discretion was required.

Maximum

(% of salary) AIP earned

AIP cash AIP deferred

Alistair Phillips-Davies 150% 1,150,285 770,691 379,594

Gregor Alexander 130% 770,532 516,256 254,276

Martin Pibworth 130% 678,296 454,458 223,838

1 Both the cash and deferred element are subject to clawback provisions.

2019 – 2022 Performance Share Plan

1. Set performance measures aligned with strategy

PSP performance measures are designed to encourage sustainable value creation, consistent with effective stewardship, encouraging

good decision-making for the long term. The measures and their weightings are shown below:

Value Creation

(40%)

Total Shareholder Return

relative to FTSE 100

(20%)

Total Shareholder Return

relative to MSCI Europe Index

(20%)

Adjusted EPS growth

(20%)

DPS growth

(20%)

Customer:

Distribution

(10%)

Customer:

Business

Energy

(10%)

Operational

(20%)

Financial

(40%)

2. Set stretching performance targets

The performance target ranges for PSP are set each year to ensure they are stretching and represent value creation for shareholders.

3. Assess performance

The vesting of shares under the PSP is subject to the performance measures and targets shown in the table below which also details the

actual outturn for the 2019 PSP award vesting this year.

Performance measure

PSP TSR v FTSE 100 TSR v MSCI Europe EPS growth DPS growth

Customer

(Distribution)

Customer

(Business Energy) Total

Link to

strategy

Simple

Stewardship

Stakeholders

Simple

Stewardship

Stakeholders

Simple

Stewardship

Stakeholders

Simple

Sustainable

Stakeholders

Simple

Stewardship

Stakeholders

Simple

Stewardship

Stakeholders

Rationale Relative

measure of

performance

Relative

measure of

performance

Underlying

measure of

financial

performance

Return on

investment

through payment

of dividends

Meeting

customers needs

is at core of our

business

Meeting

customers needs

is at core of our

business

Weighting 20% 20% 20% 20% 10% 10%

Threshold 50th percentile 50th percentile RPI RPI Median ranking Median ranking

Max 75th percentile 75th percentile RPI +10% RPI +5% Rank 1 Rank 1

Outcome Rank 13 of 95

(above 75th

percentile)

Rank 6 of 23

(above 75th

percentile)

RPI + 8.1% Below RPI Below median Average 4 of 16

Performance 100% 100% 93% 0 0% 73%

Outturn

(% of max)

20% 20% 19% 0 0% 7% 66%

190 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

4. Take account of wider environment

SSE’s TSR has performed at the maximum level relative to both the FTSE 100 and 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 been close to the

level for maximum vesting. While SSE’s dividend commitment has been met over the three-year period, threshold performance at RPI has not

been achieved following the resetting of the dividend policy in 2019.

While the PSP applies to Executive Directors only, the Committee is mindful of the outturns of the long-term incentive arrangement

(Leadership Share Plan – LSP) which applies to senior managers. On average, the LSP award has paid out at a higher level than the PSP outturn.

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 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 and the estimated value of these shares.

Awards available

(% of salary)

Awards available

(number of

shares)

Additional

awards in

respect of

accrued

dividends

Total number of

shares vesting

Estimated value

of awards

vesting

Alistair Phillips-Davies 200% 153,763 31,056 121,981 1,971,815

Gregor Alexander 175% 103,991 21,002 82,495 1,333,538

Martin Pibworth 175% 77,828 15,718 61,740 998,033

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 184 .

Other remuneration disclosures

Fees paid to the Chair and the other non-Executive Directors during 2021/22 were as follows:

Fees £000s

Non-Executive Directors 2021/22 2020/21

Dame Sue Bruce 101 100

Tony Cocker

105 95

Crawford Gillies

0 45

Richard Gillingwater CBE

0 400

Peter Lynas 91 90

Helen Mahy CBE 87 86

Sir John Manzoni

400 42

Melanie Smith 73 72

Dame Angela Strank

73 66

The Rt Hon Elish Angiolini QC

42 0

Debbie Crosbie

42 0

Total 1,014 996

1 Tony Cocker became Senior Independent Director on 1 October 2020.

2 Crawford Gillies left the Board on 30 September 2020.

3 Richard Gillingwater CBE left the Board on 31 March 2021.

4 Sir John Manzoni joined the Board as a non-Executive Director on 1 September 2020.

5 Dame Angela Strank joined the Board as a non-Executive Director on 1 May 2020.

6 The Rt Hon Elish Angiolini joined the Board as a non-Executive Director on 1 September 2021.

7 Debbie Crosbie joined the Board as a non-Executive Director on 1 September 2021.

Annual report on remuneration continued

191SSE plc Annual Report 2022

Share interests and share awards (audited)

Directors’ share interests

The table below shows the share interests of the Executive and non-Executive Directors at 31 March 2022.

Number of shares Number of options

Director

*Shareholding

requirement as a % of

salary (Actual/% met)

Shares owned

outright at

31 March 2022

Interests in

shares, awarded

without

performance

conditions at

31 March 2022

(DBS Awards)

Interests in

shares, awarded

subject to

performance

conditions at

31 March 2022

(PSP Awards)

Interests in share

options,

awarded without

performance

conditions at

31 March 2022

Interests in share

options,

awarded subject

to performance

conditions at

31 March 2022

Shares owned

outright at

31 March 2021

Gregor Alexander 608% (200% – met) 248,434 26,326 275,349 1,967 – 220,782

Elish Angiolini 2,000

Sue Bruce 2,484 – – – – 2,484

Tony Cocker 5,000 – – – – 5,000

Debbie Crosbie 2,000

Peter Lynas 5,000 – – – – 5,000

Helen Mahy 3,310 – – – – 2,027

John Manzoni 2,437 2,311

Alistair Phillips-Davies 556% (200% – met) 293,747 39,302 407,138 1,997 – 253,462

Martin Pibworth 268% (200% – met) 97,525 20,524 217,855 2,662 – 78,557

Melanie Smith 2,100 – – – – 2,000

Angela Strank 1,669 – – – – 388

* Shareholding requirement:

Executive Directors – 200% of salary.

Non-Executive Directors – minimum 2,000 shares.

Price used to calculate shareholding requirement as % of salary as at 31/03/22 £17.4850.

Directors’ Long-term Incentive Plan interests

Deferred Bonus awards granted in 2021 and PSP awards granted in 2021

The tables below shows the deferred bonus awards and PSP awards granted to Executive Directors in 2021.

Deferred bonus awards granted 2021

Recipient Date of Grant Shares Granted

Market Value on

date of award Face Value

Gregor Alexander 06/07/2021 13,832 £15.2400 £210,799.68

Alistair Phillips-Davies 06/07/2021 20,650 £15.2400 £314,706.00

Martin Pibworth 06/07/2021 11,174 £15.2400 £170,291.76

£695,797.44

PSP awards granted 2020

Recipient Date of Grant Shares Granted

Market Value on

date of award Face Value

Gregor Alexander 06/07/2021 82,597 £15.2400 £1,258,778.28

£1,258,778.28

Alistair Phillips-Davies 06/07/2021 122,131 £15.2400 £1,861,276.44

£1,861,276.44

Martin Pibworth 06/07/2021 73,597 £15.2400 £1,121,618.28

£1,121,618.28

192 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Directors’ Long-term Incentive Plan interests

The table below details the Executive Directors’ Long-term Incentive Plan interests.

Share plan Date of Award

Normal

Exercise Period

(or Vesting

Date)

No. of

shares under

award as at

1 April 2021

Option

Exercise

Price

Additional

awarded

during the year

incl. dividend

No. of shares

lapsed during

the year incl.

dividend

No.of shares

realised during

the year incl.

dividend

No. of shares

under award at

31 March 2022

Gregor

Alexander

DBP 2016

28/06/2018 28/06/2021 16,640 16,640

DBP 2016

28/06/2019 28/06/2022 0 0

DBP 2016

26/06/2020 26/06/2023 12,494 12,494

DBP 2016

06/07/2021 06/07/2024 13,832

13,832

PSP

28/06/2018 28/06/2021 89,466 79,913 31,076

PSP

28/06/2019 28/06/2022 103,991 103,991

PSP

26/06/2020 26/06/2023 88,761 88,761

PSP

06/07/2021 06/07/2024 82,597

82,597

Sharesave 12/07/2019

01/10/22

- 31/03/23 1,837 901p 1,837

Sharesave 21/07/2020

01/10/23

- 31/03/24 130 1,107p 130

Alistair

Phillips-Davies

DBP 2016

28/06/2018 28/06/2021 24,841 24,841

DBP 2016

28/06/2019 28/06/2022 0 0

DBP 2016

26/06/2020 26/06/2023 18,652 18,652

DBP 2016

06/07/2021 06/07/2024 20,650

20,650

PSP

28/06/2018 28/06/2021 132,287 118,16

45,951

PSP

28/06/2019 28/06/2022 153,763 153,763

PSP

26/06/2020 26/06/2023 131,244 131,244

PSP

06/07/2021 06/07/2022 122,131

122,131

Sharesave 12/07/2019

01/10/22

- 31/03/23 1,997 901p 1,997

Martin

Pibworth

DBP 2006

28/06/2018 28/06/2021 10,398 10,398

DBP 2016

28/06/2019 28/06/2022 0 0

DBP 2016

26/06/2020 26/06/2023 9,350 9,350

DBP 2016

06/07/2021 06/07/2024 11,174

11,174

PSP

28/06/2018 28/06/2021 66,957 59,807 23,258

PSP

28/06/2019 28/06/2022 7 7,828 77,828

PSP

26/06/2020 26/06/2023 66,430 66,430

PSP

06/07/2021 06/07/2024 73,597

73,597

Sharesave 12/07/2019

01/10/22

- 31/03/23 998 901p 998

Sharesave 12/07/2019

01/10/24

- 31/03/25 1,664 901p 1,664

Shares which are released under the DBP 2016 and PSP Awards attract additional shares in respect of the notional reinvestment of dividends. In addition to the shares

released under these schemes, as indicated in the table above, the following shares were realised arising from such notional reinvestment of dividends:

Gregor Alexander received 10,027 shares, Alistair Phillips-Davies received 14,885 shares and Martin Pibworth received 7,006 shares.

1 The performance conditions applicable to awards under the PSP are described on page 189 . The 2018 awards under the PSP vested at 28%.

2 25% of annual bonus payable to Executive Directors and Senior Managers is satisfied as a conditional award of shares under the DBP 2016. Vesting of shares under

the DBP 2016 is dependent on continued service over a three-year period. In view of the linkage to annual bonus.

3 The market value of a share on the date on which these awards were made was 1,513p.

4 The market value of a share on the date on which these awards were realised was 1,5222599p.

The closing market price of shares at 31 March 2022 was 1,74850p and the range for the year was 1,455p to 1,749p. Awards granted during the year were granted under

the PSP. The aggregate amount of gains made by the Directors on the exercise of share options and realisation of awards during the year was £2,506,172 (2021 -

£2,392,187).

Annual report on remuneration continued

193SSE plc Annual Report 2022

2. Historical remuneration disclosures

Change in Chief Executive total remuneration

The graph below shows SSE TSR performance over the last ten years relative to FTSE 100 performance.

The table below shows the Chief Executive’s annual remuneration over the same period.

Directors

Single total

figure of

remuneration

(£’000)

Annual variable

element award

(% of maximum)

Long-term

incentive

vesting

(% of

maximum) Application of discretion

2021/22 (Alistair Phillips-Davies) 4,485 83 66

2020/21 (Alistair Phillips-Davies) 3,045 69 28 Downward discretion applied to AIP

2019/20 (Alistair Phillips-Davies) 2,418 59 27

2018/19 (Alistair Phillips-Davies) 1,639 0 26 Downward discretion applied to AIP

2017/18 (Alistair Phillips-Davies) 2,693 78 30

2016/17 (Alistair Phillips-Davies) 2,917 72 46 Downward discretion applied to AIP

2015/16 (Alistair Phillips-Davies) 1,696 54 0

2014/15 (Alistair Phillips-Davies) 2,311 64 0

2013/14 (Alistair Phillips-Davies and Ian Marchant)

2,546 63 22

2012/13 (Ian Marchant) 2,241 0 53 Chief Executive waived AIP

1 The single total figure of remuneration is calculated on the same basis as the ‘single total figure of remuneration’ table on page 184 .

2 The annual variable element award (AIP) is the figure shown on page 186  and reflected in the ‘single total figure of remuneration table’ on page 184 .

3 The long-term incentive (PSP) vesting is the figure shown on page 189 , and reflected in the ‘single total figure of remuneration table’ on page 184 .

4 For 2013/14, an aggregate number has been applied by combining pro-rata values for each CEO based upon their time in role.

Alignment of Directors’ Remuneration Policy with pay across the wider employee population

In setting Executive Directors’ pay, a number of factors are taken into account including importantly, relativity to the wider workforce. For

a number of years, a Chief Executive pay ratio has been disclosed voluntarily. In 2018/19, the methodology was revised to meet the new

reporting requirements. The methodology used is a hybrid approach combining Gender Pay Gap data (as disclosed in the Sustainability

Report ) with additional elements of pay which are important components of SSE employees’ pay such as overtime, employer’s

contribution to pension and excluding salary sacrifice arrangements. This is believed to allow the most appropriate and consistent

comparison.

As shown in the table below, the pay ratio has increased from 71:1 at median in 2020/21 to 102:1 in 2021/22. While the median

remuneration for all employees has increased by 3.5%, the Chief Executive’s remuneration has increased by 47%. This is due mainly to

increased variable pay for the Chief Executive following a strong performance year and a 27% increase in the share price during the year

and an increase in SSE’s TSR over the three-year period of over 66%.

SSE’s is committed to being a responsible employer, and the remuneration policy is designed with fairness in mind – fairness to Executive

Directors in recognition of the extent of their responsibilities and, fairness relative to the rest of the SSE team. More information on SSE’s

responsible employer ethos can be found within the Sustainability Report  which includes information on the commitment to being a

real Living Wage employer, and other initiatives which help to ensure value is created and retained for employees and the organisation.

SSE

FTSE 100

March

2022

100

120

140

160

180

200

220

240

260

280

TSR (rebased to 100)

March

2012

March

2013

March

2014

March

2016

March

2015

March

2017

March

2020

March

2021

March

2019

March

2018

194 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Year

Calculation

Methodology

25th percentile Median 75th percentile

Total employee

earnings (m)

Total Remuneration Ratio Total Remuneration Ratio Total Remuneration Ratio

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

Annual percentage change in remuneration of the Directors

Each year, when the Remuneration Committee is considering salary increases, incentive awards and benefits for Executive Directors, it is

mindful of the treatment of the wider workforce. The table below shows how the Chief Executive’s change in remuneration in 2021/22

compares to that of the wider workforce.

Non-Executive Directors Executive Directors

Dame

Sue Bruce

Tony

Cocker

Peter

Lynas

Helen

Mahey

CBE

Melanie

Smith

Energy and

Commercial

Director

Finance

Director

Chief

Executive

All

Employees

2021/22

Base Salary/Fee 1.0% 10.5% 1.1% 1.2% 1.4% 11.4% 1.0% 1.0% 5.9%

Benefits

0.0% 4.5% 4.0% 3.2%

Bonus 32.4% 21.6% 21.4% 50.5%

2020/21

Base Salary/Fee 2.0% 13.1% 2.3% 2.4% 2.9% 10.9% 2.8% 2.8% 6.2%

Benefits

5.9% 0.0% 0.0% 8.0%

Bonus 29.6% 21.9% 20.2% 10.3%

1 All employee benefits include car benefits, Share Incentive Plan Company contributions and medical benefits in alignment with the benefits reported for the

Executive Directors in the single total figure of remuneration on page 184 .

Non-Executive Directors do not earn benefits or bonus.

Four Non-Executive Directors(Sir John Manzoni, Dame Angela Strank, The Rt Hon Elish Angiolini and Debbie Crosbie) are excluded from this table as they have not

been in post for a full two years to make a viable comparison.

Relative importance of the spend on pay

The table below indicates how the earnings of Executive Directors compare with SSE’s other financial dispersals. The movement in

Executive Directors’ earnings in 2022 is explained on page 184 .

2017/18

£m

2018/19

£m

2019/20

£m

2020/21

£m

2021/22

£m

Executive Directors’ earnings

5.3 3.6 5.1 6.8 10.1

Dividends to shareholders 926.1 973.0 948.5 836.4 862.3

Adjusted investment, capital and acquisition expenditure 1,503.0 1,422.9 1,371.9 912.0 2,073.7

Total UK taxes paid (profits, property, environment

and employment taxes)

484.1 403.7 421.6 379.0 335.3

Staff costs

665.6 653.5 684.7 700.4 688.7

1 Calculated on the same basis as the ‘single total figure of remuneration’ table on page 184 .

2 Includes corporation tax, employers’ National Insurance contributions and business rates.

3 Staff costs for all employees, as per note 8.1 of the accounts, excluding Executive Directors.

For every £1 spent on Executive Directors’ earnings by SSE in 2021/22, £33 was paid in tax, £68 was spent on employee costs and £205

was spent on capital and investment expenditure. In addition, £123 was made in dividend payments to shareholders for every £1 spent

on Executive Directors’ earnings.

Annual report on remuneration continued

195SSE plc Annual Report 2022

3. Governance

External appointments

Executive Directors are able to accept a non-Executive appointment outside the Company with the consent of the Board, as such

appointments can enhance their experience and value to the Company. Any fees received are retained by the Director. Gregor Alexander

was a non-Executive Director of Stagecoach Group plc during 2021 and received £53,000 in fees.

Payments for loss of office and payments to past Directors

There were no payments for loss of office or to former Directors during the year.

Advice to the Remuneration Committee

The Chief Executive, the Director of Human Resources and Head of Reward advised the Committee on certain remuneration matters for

the Executive Directors and senior executives although they were not present for any discussions related to their own remuneration.

The Director of Human Resources and Head of Reward advised on HR strategy and the application of HR policies across the wider

organisation.

FIT Remuneration Consultants LLP (FIT) provided a range of information to the Committee which included market data drawn from

published surveys, governance developments and their application to the Company, advice on remuneration disclosures and regulations

and comparator group pay. FIT received fees of £96,569 in relation to their work for the Committee, calculated on a time and materials

basis. FIT are founding members of, and adhere to, the Remuneration Consultants’ Group Code of Conduct. The Code defines the roles

of consultants, including the requirement to have due regard to the organisation’s strategy, financial situation, pay philosophy, the

Board’s statutory duties and the views of investors and other stakeholders. The Committee reviews the advisers’ performance annually to

determine that it is satisfied with the quality, relevance, objectivity and independence of advice being provided. FIT provides no other

services and has no other connection to the Company or individual Directors.

Freshfields LLP also provided advice on legal matters, such as share plan rules, during the year.

Evaluation

Through the internal Board evaluation process which was carried out during the year, it was confirmed that the Remuneration

Committee continued to operate effectively. Details of the wider annual evaluation process are set out on pages 143 to 144 .

Risk assessment

The Remuneration Committee carries out a remuneration risk assessment on an annual basis to identify and evaluate the risks inherent

in our Directors’ Remuneration Policy. Important risk mitigators identified included the broad balance of clear financial and non-financial

performance measures, targets which are set in line with SSE’s business plans and an overall approach to pay design which rewards the

delivery of strong, yet sustainable, performance. The review of the Directors’ Remuneration Policy during the year has also involved the

systematic assessment of a variety of risks including strategic, operational, behavioural, talent and governance.

Shareholder voting in 2021

On 22 July 2021, shareholders approved the Annual report on remuneration for the year ended 31 March 2021 and the result is shown

below. Also shown below is the result of shareholder voting on the current Directors’ Remuneration Policy which was approved at the

AGM on 18 July 2019.

ANNUAL REPORT ON REMUNERATION – SHAREHOLDING VOTING IN 2021

For – 97.09%

Against – 2.91%

Total votes cast: 653,714,954

Votes withheld: 4,066,190

DIRECTORS’ REMUNERATION POLICY – SHAREHOLDER VOTING IN 2019

For – 99.13%

Against – 0.87%

Total votes cast: 680,814,523

Votes withheld: 8,425,369

196 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Annual report on remuneration continued

Remuneration Committee

The Terms of Reference for the Committee were reviewed during 2021/22 and are available on the Company’s website (sse.com ).

In summary, the Committee determines and agrees with the Board, the Company’s framework and policy for executive remuneration

including setting remuneration for all Executive Directors, the Company Chair, the Group Executive Committee and Company Secretary.

During the year, a minor amendment was made relating to the approval of incentive design across the wider Company.

The members of the Committee and the meetings attended are set out on page 125 . The following agenda items were considered:

Meeting date Agenda items

May 2021 Market and governance update, Executive Directors’ pensions, base salary and fee review, AIP and PSP year-end

performance, all employee remuneration, 2021 Directors’ Remuneration Report, review of executive share plan

leavers, 2021-23 Remuneration Committee Plan.

August 2021 Leadership Share Plan target update, Directors’ Remuneration Policy planning.

November 2021 Market and governance update, AIP and PSP mid-year performance update, Directors’ Remuneration Policy

discussion, 2021-23 Remuneration Committee plan.

December 2021 Remuneration Policy – follow-up discussion

March 2022 Shareholder consultation feedback, incentive measures design, market and governance update, AIP and PSP

performance update, Executive Directors’ salaries and the Chair’s fee, below-Board remuneration, 2021 Directors’

Remuneration Report, Remuneration Committee terms of reference review, 2021-23 Remuneration Committee

plan, Remuneration Committee evaluation.

4. Implementation of the Directors’ Remuneration Policy for 2022/23

The table below sets out how the Remuneration Committee intends to operate the remuneration policy for the year ending

31 March2023:

Element of pay Implementation for 2022/23 Comment

Base salary Salaries will be increased by 3%

with effect from 1 April 2022.

The increase is in line with the negotiated settlement for collectively

bargained employees and the general pay pot for all other

employees. Although the new Policy gives SSE some flexibility in

respect of market positioning there are no plans to make any market

adjustments to the base salaries of the current executive directors.

Benefits No changes proposed.

Pension No changes proposed. The phased alignment of the Chief Commercial Officer’s cash

allowance in lieu of pension will be accelerated and reduced to

15% of salary at the end of 2022.

Annual Incentive Plan

(no change to quantum)

The performance measures and

weightings (in brackets) are as follows:

Adjusted EPS (30%)

Cash flow as measured by Net Debt/

EBITDA (20%) Operational (30%)

Personal/team (10%)

Sustainability (10%)

The weighting and the definition of cash flow have been

changed to increase the focus on cash flow. The operational

and sustainability measures are new. Measures will be assessed

on both a quantitative and qualitative basis. A portion (33%) of any

bonus earned will continue to be deferred into shares which vest

after three years. From 2022, the new post-employment share

ownership supersedes the requirement to retain all deferred shares

from the AIP for two years after employment. The targets for the

2022/23 Annual Incentive Plan will be disclosed in next year’s

Directors’ Remuneration Report provided they are not, for any

reason, commercially sensitive. Full details of the measures are

shown below. The operational metric combines a mix of

qualitative and quantitative goals. The sustainability goals measure

SSE’s relative performance.

Performance Share Plan

(increase in maximum

of 50% of salary to align

with tougher targets)

The face value of the awards

Chief Executive: 250% of salary

Finance Director and Chief Commercial

Officer: 225% of salary

The performance measures and

weightings (in brackets) are as follows:

Relative TSR (50%)

Adjusted EPS (20%)

Sustainability (15%

Strategic (15%)

In response to the feedback from investors, the weighting of

financial/share-based measures and non-financial measures

moves to 70% and 30% respectively. The weighting of relative

TSR has also been increased from 40% to 50% of the total

award and the weighting of adjusted EPS growth is 20%.

Performance standards have been increased in response

to the higher quantum potential. Any vested shares from the

Performance Share Awards made in 2022 and beyond are subject

to the new post-employment share ownership policy. Full details

of the performance measures are shown below. The strategic and

sustainability measures are qualitative.

197SSE plc Annual Report 2022

AIP – the measures for 2022/23

Adjusted Earnings Per Share and cash flow remain key measures for the AIP. The definition of cash flow has been updated and the

weighting has been increased in the light of the Net Zero Acceleration Programme (NZAP). Targets will be set annually in light of NZAP

and disclosed in next year’s Directors’ Remuneration Report.

Performance measure Adjusted EPS Cash flow Personal/Individual* Operational** Sustainability

Weighting 30% 20% 10% 30% 10%

Description Underlying

measure

of financial

performance

and a strategic

KPI.

Net debt divided

by EBITDA.

Rewards actions

which go beyond

the normal

responsibilities

of the role. May

be individual or

team based.

Measures and

targets are set

in priority areas

including

people (safety

and inclusion

and diversity),

renewables,

distribution,

transmission,

thermal,

customers and

other growth and

transactions.

SSE’s performance

will be rated by

four external

ratings agencies –

MSCI, V.E,

Sustainalytics

and S&P Global.

Performance at

the median will

be deemed the

threshold and

performance at

the upper quintile

or above, the

maximum.

* Examples of the personal goals include the active engagement in and cascading of SSE’s Inclusion & Diversity development programmes and the implementation

of SSE’s cultural action plan as measured by the Great Place To Work (GPTW) assessment using WTW’s methodology and other agreed engagement scorecard

metrics.

** Examples of the operational goals include: People: Health & Safety performance as measured by Total Recordable Incident Rate (TRIR); recruitment plans and

inclusion and diversity as measured by time to hire, filling of vacancies and the percentage increase in gender diversity across SSE. Renewables: cost per MW hour,

plant availability, progress on renewables pipeline. Distribution: progress against ED2 business plan; incentive income against agreed target. Transmission:

contract awards achieved against agreed plan; delivery of outputs and approval of projects that maintain a trajectory of RAV greater than £6bn by 2026. Thermal:

plant availability; balancing market performance. Customer: finish above median in the Citizen’s Advice non-domestic supplier league table. Other Growth &

Transactions: progress building pipeline across business areas including solar, storage, hydrogen, and other priority business development areas; progress made

on financial sell down of T & D businesses.

The personal and operational goals will be assessed using a scoring framework as follows:

Score Illustrative performance assessment Illustrative outturn as % of maximum

1 Below threshold Zero

2 Threshold performance 20%

3 Majority of goals at target 40%

4 Substantial majority of goals at or above target 70%

5 All goals at or above target 100%

The Remuneration Committee can decide to award an outturn between levels if warranted.

198 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

Annual report on remuneration continued

The measures for awards under the Performance Share Plan for 2022

Relative Total Shareholder Return (TSR) and EPS account for 50% and 20% respectively of the total and the new sustainability and

strategic measures 30% of the total award as follows:

Performance measure

Total Shareholder

Return relative to

the FTSE 100

Total Shareholder

Return relative to

the MSCI European

Utilities

Adjusted Earnings

per Share Strategic Sustainability

Weighting 20% 30% 20% 15% 15%

Threshold performance 50th percentile

(20% outturn)

50th percentile

(20% outturn)

Compound

annual growth

of 4% (20% outturn)

See below See below

Maximum performance 80th percentile

(100% outturn)

80th percentile

(100% outturn)

Compound

annual growth

of 11% (100%

outturn)

See below See below

The TSR performance targets have been strengthened with 20% of that element vesting for median performance (previously 25%) and

full vesting of that element only achieved at 80th percentile ranking (increased from 75th percentile).

The growth targets for EPS have been set based on SSE’s current plan for the next three years. The top end of range exceeds the Board’s

expectations, is stretching and will result in EPS of 130.5p. The Committee will assess the growth targets for future awards under the PSP

to ensure that they remain challenging and linked to the business plan.

Strategic measures and targets for the 2022 PSP award

The measures and targets for this element are linked to the Remuneration Committee’s assessment of SSE’s performance over the three

years to 31 March 2025 in the three main areas of the implementation of the NZAP strategy.

Strategic area in NZAP Measures and targets

Renewables >10GW pipeline of net installed capacity potential by FY26.

2GW to be built by FY26.

Networks growth Transmission and Distribution to exceed NZAP RAV growth targets.

Energy businesses Low carbon thermal installed capacity to meet 0.9GW by FY26.

DE installed capacity to reach 0.6GW by FY26.

Sustainability measures and targets for the 2022 PSP award

SSE’s UN SDG 2030 Goal Measure and Targets

SDG 13 Climate Action:

Reduce scope 1 carbon intensity by 80% by 2030, compared to

2017/18 levels, to 61g CO2e/kWh.

Scope 1 carbon intensity reduction to 61gCO2e/kWh

SDG 7 Affordable and Clean Energy:

Build a renewable energy portfolio that generates at least

50TWh of renewable electricity a year by 2030.

Renewables output TWh tracked to 2025/26.

Renewables output TWh by 2030/31.

SDG 9 Industry, Innovation and Infrastructure:

Enable at least 20GW of renewable generation and facilitate

around 2 million EVs and 1 million heat pumps on SSEN’s

electricity networks by 2030.

GW renewable generation capacity connected to SSEN’s electricity

transmission network by 2026.

Low-carbon technologies connected to SSEN’s local electricity

distribution networks by 2028.

SDG 8 Decent Work and Economic Growth:

Be a global leader for the just transition to net zero, with

a guarantee of fair work and commitment to paying fair tax

and sharing economic value.

Achieve performance in the top 10% of rankings on average for

progress on Just Transition, including in the World Benchmarking

Alliance (WBA) and others as they emerge.

Performance against the strategic and sustainability measures and targets will be assessed using the same scoring framework shown

above in respect of the personal and operational measures and targets for the AIP.

199SSE plc Annual Report 2022

Chair’s and non-Executive Directors’ fees

For 2022/23 Sir John Manzoni’s fee of £400,000 was increased by 3%,in line with the wider employee population, to £412,000.

Last year, non-Executive Directors’ fees were increased by 1% in line with the wider employee population. For 2022/23, it was agreed that

fees are increased by 3% which is also in line with the wider employee population.

Chair and non-Executive Director fee levels for 2022/23 are shown in the table below. Non-Executive Directors receive a base fee plus

an additional fee for chairing a Committee or for performing the role of Non-Executive Director for Employee Engagement.

Fee 2022/23

Chair £412,000

Base fee £74,867

Senior Independent Director £18,717

Audit Committee Chair £18,717

Remuneration Committee Chair £18,717

SHEAC Chair £14,965

Energy Markets Risk Committee Chair £14,965

Non-Executive Director for Employee Engagement £10,689

Dame Sue Bruce DBE

Chair of the Remuneration Committee

24 May 2022

200 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

The Directors submit their Annual Report and Accounts for SSE plc, together with the consolidated Financial Statements of the SSE

Group of companies, for the year ended 31 March 2022.

The Strategic Report is set out on pages 1 to 111  and the Directors’ Report is set out on pages 112 to 203 . The Strategic Report

and the Directors’ Report together constitute the management report as required under Rule 4.1.8R of the Disclosure Guidance and

Transparency Rules.

As permitted by section 414C (11) of Companies Act 2006 the below matters have been disclosed in the Strategic Report:

Page reference

An indication of likely future developments in the business of the Company

pages 1 to 111 

Particulars of important events affecting the Company since the financial year end

page 289 

Greenhouse gas emissions

page 54 

Energy consumption

page 57 

Energy efficiency action

page 57 

Employee engagement and involvement

page 34 and 60 to 63 

Engagement with suppliers, customers and others in a business relationship with the Company

pages 36,39 and 58 to 67 

A summary of the principal risks facing the Company

pages 71 to 81 

Information required to be disclosed under Listing Rule 9.8.4R is contained on the pages detailed below.

Page reference

Statement of amount of interest capitalised by the Group during the financial year

pages 247 to 248 

Details of any long-term incentive schemes

pages 168 to 199 

Results and dividends

The Group’s results and performance highlights for the year are set out on pages 20 to 21 and 82 to 94 . An interim dividend of 25.5

pence per Ordinary Share was paid on 10 March 2022. The Directors propose a final dividend of 60.2p per Ordinary Share. Subject to

approval at the AGM 2022, the final dividend will be paid on 22 September 2022 to shareholders on the Register of Members at close of

business on 29 July 2022.

Board of Directors

Director appointment and retirement

The Company’s Directors who served during the financial year ending 31 March 2022 are provided on pages 118 to 122 .

The rules governing the appointment and retirement of Directors are set out in the Company’s Articles of Association, the UK Corporate

Governance Code, the Companies Act 2006 and other related legislation.

Indemnification of Directors and insurance

The Directors have the benefit of an indemnity provision contained in the Company’s Articles of Association. In addition, the Directors

have been granted a qualifying third-party indemnity provision which was in force throughout the financial year and remains in force.

Also, throughout the financial year, the Company purchased and maintained Directors’ and Officers’ liability insurance in respect of itself

and for its Directors and Officers.

Political donations and expenditure

SSE operates on a politically neutral basis and does not make any donations to political parties, political organisations, or independent

election candidates. During the year, no political expenditure was incurred, and no political donations were made by the Group.

Accounting policies, financial instruments, and risk

Details of the Group’s accounting policies, together with details of financial instruments and risk, are provided in note 24 to the Financial

Statements and Notes A6 to A8 of the Accompanying Information.

Research and development

SSE is involved in a range of innovative projects and programmes which are designed to progressively transform the energy system.

A number of these projects and programmes are referred to in the Strategic Report in pages 1 to 111 .

Other statutory information

201SSE plc Annual Report 2022

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 60 to 65 .

Share capital

The Company has a single share class which is divided into Ordinary Shares of 50 pence each. The issued share capital of the Company

as of 31 March 2022, together with details of any changes during the year, is set out in note 22 to the Financial Statements.

As of 31 March 2022, the issued share capital of the Company consisted of 1,073,136,776 Ordinary Shares. This figure includes 5,474,759

ordinary shares which are held in treasury (representing 0.51% of the Company’s issued share capital), with these shares voting and

dividend rights automatically suspended.

The Company was authorised at the AGM 2021 to allot shares or grant rights over shares up to an aggregate nominal amount equal to

£173,851,098 (representing 347,702,196 Ordinary Shares of 50 pence each excluding Treasury Shares), representing one-third of its

issued share capital. A renewal of this authority will be proposed at the AGM 2022.

The Company was authorised at the AGM 2021 to allot up to an aggregate nominal amount of £26,077,664 (representing 52,155,328)

Ordinary Shares of 50 pence each and 5% of issued share capital) for cash without first offering them to existing shareholders in

proportion to their holding. A renewal of this authority will be proposed at the AGM 2022.

Transfer of Ordinary Shares

There are no restrictions on the transfer of Ordinary Shares in the Company other than certain restrictions which may from time-to-time

be imposed by law. The Company is not aware of any agreements between shareholders that may result in restrictions on the transfer of

securities and/or voting rights.

Substantial shareholdings

At 31 March 2022, the following percentage interests in the Ordinary Share capital of the Company, had been notified under Rule 5 of the

Disclosure Guidance and Transparency Rules, (‘DTR 5’). The Company is not aware of any changes in the interests disclosed under DTR 5

between 31 March 2022 and 24 May 2022.

Shareholder

Voting rights

attached to

shares*

Voting rights through

financial instruments* Total of both in % Nature of holding

BlackRock, Inc. 70,784,883 6.64% 21,521,537 2.01% 8.65% Indirect, Securities Lending,

ADR, CFD

The Capital Group

Companies, Inc.

50,981,817 4.90% – – 4.90% Indirect, ADR

Invesco Limited 45,775,918 4.69% – – 4.69% Indirect

Caisse de dépôt et

placement du Québec

41,492,159 3.98% – – 3.98% Direct

* At date of disclosure by relevant entity.

Authority to purchase shares

At the AGM 2021, the Company obtained shareholder approval to purchase up to 104,310,659 of its own Ordinary Shares (representing

10% of its issued share capital) up until the earlier of the conclusion of the AGM 2022 and close of business on 30 September 2022.

The Company did not undertake any share repurchase programmes during the financial year ending 31 March 2022.

During the financial year, and up until 31 March 2022, the Company used 584,806 of the treasury shares acquired under the 2016/17

share repurchase programme to satisfy the requirements of the all-employee Sharesave scheme.

The Directors will, again, seek renewal of their authority to purchase in the market the Company’s own shares at the AGM 2022.

Voting

Each Ordinary Share of the Company carries one vote at general meetings of the Company. Any Ordinary Shares held in treasury have

no voting rights.

202 SSE plc Annual Report 2022

DIRECTORS’ REPORT – CORPORATE GOVERNANCE

A shareholder entitled to attend, speak and vote at a general meeting may exercise their right to vote in person, by proxy, or in relation to

corporate members, by corporate representatives. To be valid, notification of the appointment of a proxy must be received not less than

48 hours before the general meeting at which the person named in the proxy notice proposes to vote. The Directors may in their

discretion determine that in calculating the 48-hour period, no account be taken of any part of a day which is not a working day.

Employees who participate in the Share Incentive Plan whose shares remain in the schemes’ trust give directions to the trustees to vote

on their behalf by way of a Form of Direction. SSE also has a Share Plan Account service with Computershare available to employees

with shares arising from a SAYE option maturity, which are voted through the nominee.

Annual General Meeting (AGM)

The AGM of the Company will be held at the Perth Concert Hall, Mill Street, Perth PH1 5HZ on Thursday 21 July 2022 at 12.30pm.

Following the necessary approvals being granted at the AGM 2022, shareholders will also be able to attend virtually via the use of an

electronic platform and ask questions and vote in real time. Details of the full arrangements for the AGM, resolutions to be proposed, how

to vote and ask questions are set out in the Notice of Annual General Meeting 2022 which accompanies this report for shareholders

receiving hard copy documents, and which is available at sse.com  for those who elected to receive documents electronically.

Articles of Association changes

The Company’s latest Articles of Association were adopted at the 2022 AGM. Any amendments to the Articles of Association can only be

made by a special resolution at a general meeting of shareholders.

Change of control

The Company is party to several agreements that take effect, alter or terminate upon a change of control of the Company following a

takeover. At 31 March 2022, change of control provisions were included in agreements for committed credit facilities, EIB debt, US

Private Placements, Senior Bonds and Hybrid instruments. The Company is not aware of any other agreements with change of control

provisions that are significant in terms of their potential impact to the business.

Disclosure of information to the auditor

Each of the Directors who held office at the date of approval of this Directors’ Report confirms that, so far as each Director is aware,

there is no relevant audit information of which the Company’s Auditors are unaware and each Director has taken all the steps that ought

to have been taken in his or her duty as a Director to make himself or herself aware of any relevant audit information and to establish that

the Company’s Auditors are aware of that information.

Related party transactions

Related party transactions are set out in Note A5 of the Accompanying Information.

The Directors’ Report set out on pages 112 to 203  has been approved by the Board of Directors in accordance with the Companies

Act 2006.

By order of the Board

Sally Fairbairn

Company Secretary

24 May 2022

Other statutory information continued

203SSE plc Annual Report 2022

The Directors are responsible for preparing the Annual Report and the Group and parent Company financial statements in accordance

with applicable law and regulations.

Company law requires the Directors to prepare Group and parent Company financial statements for each financial year. Under that law

they are required to prepare the Group financial statements in accordance with UK-adopted international accounting standards (“IFRS”),

and have elected to prepare the parent Company financial statements in accordance with United Kingdom Generally Accepted

Accounting Practice (United Kingdom Accounting Standards and applicable law) including Financial Reporting Standard 101, “Reduced

Disclosure Framework”.

Under company law the Directors must not approve the financial statements unless they are satisfied that they give a true and fair view of

the state of affairs of the Group and parent Company and of their profit or loss for that period. In preparing each of the Group and parent

Company financial statements, the Directors are required to:

• select suitable accounting policies in accordance with IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors and

then apply them consistently;

• make judgements and accounting estimates that are reasonable, relevant and reliable;

• present information, including accounting policies, in a manner that provides relevant, reliable, comparable and understandable

information;

• provide additional disclosures when compliance with the specific requirements in IFRSs (and in respect of the parent Company

financial statements, FRS 101) is insufficient to enable users to understand the impact of particular transactions, other events and

conditions on the Group and Company financial position and financial performance;

• in respect of the Group financial statements, state whether UK-adopted international accounting standards have been followed,

subject to any material departures disclosed and explained in the financial statements;

• in respect of the parent Company financial statements, state whether applicable UK Accounting Standards, including FRS 101, have

been followed, subject to any material departures disclosed and explained in the financial statements; and

• assess the Group and parent Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going

concern; and

• use the going concern basis of accounting unless they either intend to liquidate the Group or the parent Company or to cease

• operations, or have no realistic alternative but to do so.

The Directors are responsible for keeping adequate accounting records that are sufficient to show and explain the parent Company’s

transactions and disclose with reasonable accuracy at any time the financial position of the parent Company and enable them to ensure

that its financial statements comply with the Companies Act 2006. They are responsible for such internal control as they determine is

necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and

have general responsibility for taking such steps as are reasonably open to them to safeguard the assets of the Group and to prevent and

detect fraud and other irregularities.

Under applicable law and regulations, the Directors are also responsible for preparing a Strategic Report, Directors’ Report, Directors’

Remuneration Report and Corporate Governance Statement that complies with that law and those regulations.

The Directors are responsible for the maintenance and integrity of the corporate and financial information included on the Company’s

website. Legislation in the UK governing the preparation and dissemination of financial statements may differ from legislation in other

jurisdictions.

Responsibility statement of the Directors in respect of the annual financial report

We confirm that to the best of our knowledge:

• the financial statements, prepared in accordance with UK-adopted international accounting standards give a true and fair view of the

assets, liabilities, financial position and profit or loss of the Company and the undertakings included in the consolidation taken as a

whole; and

• the annual report, including the strategic report, includes a fair review of the development and performance of the business and the

position of the issuer and the undertakings included in the consolidation taken as a whole, together with a description of the principal

risks and uncertainties that they face.

We consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information We

consider the annual report and accounts, taken as a whole, is fair, balanced and understandable and provides the information necessary

for shareholders to assess the Group’s position and performance, business model and strategy.

Alistair Phillips-Davies Gregor Alexander

Chief Executive Finance Director

24 May 2022

Statement of Directors’ responsibilities

in respect of the annual report and the financial statements

204 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

When assessing, discussing and measuring the Group’s financial performance, management refer to measures used for internal

performance management. These measures are not defined or specified under International Financial Reporting Standards (IFRS)

and as such are considered to be Alternative Performance Measures (“APMs”).

By their nature, APMs are not uniformly applied by all preparers including other participants in the Group’s industry. Accordingly,

APMs used by the Group may not be comparable to other companies within the Group’s industry.

Purpose

APMs are used by management to aid comparison and assess historical performance against internal performance benchmarks and

across reporting periods. These measures provide an ongoing and consistent basis to assess performance by excluding items that are

materially non-recurring, uncontrollable or exceptional. These measures can be classified in terms of their key financial characteristics:

• Profit measures allow management to assess and benchmark underlying business performance during the year. They are primarily

used by operational management to measure operating profit contribution and are also used by the Board to assess performance

against business plan. The Group has six profit measures, of which adjusted operating profit and adjusted profit before tax are the

main focus of management through the financial year and adjusted earnings per share is the main focus of management on an annual

basis. In order to derive adjusted earnings per share, the Group has defined adjusted operating profit, adjusted net finance costs, and

adjusted current tax charge as components of the adjusted earnings per share calculation. Adjusted EBITDA is used by management

as a proxy for cash derived from ordinary operations of the Group.

• Capital measures allow management to track and assess the progress of the Group’s significant ongoing investment in capital assets

and projects against their investment cases, including the expected timing of their operational deployment and also to provide a

measure of progress against the Group’s strategic Net Zero Acceleration Programme objectives.

• Debt measures allow management to record and monitor both operating cash generation and the Group’s ongoing financing and

liquidity position.

Changes to APMs in the year

The Group has defined a new capital APM in the year of ‘Adjusted investment, capital and acquisition expenditure’. The APM is comprised

of the existing ‘Adjusted investment and capital expenditure’ metric, but also includes cash consideration paid for business combination

acquisitions. During the year the Group completed the acquisition of a controlling 80% stake in its Japanese offshore renewable

development platform, SSE Pacifico (see note 12) and announced the expected acquisition, in financial year ended 31 March 2023, of a

European onshore renewable energy development platform from Siemens Gamesa Renewable Energy (“SGRE”). As the Group expands

internationally it is expected that there will be further acquisitions to enhance the Group’s development portfolio. These acquisition costs

are included in this new APM to better represent the Group’s overall investments associated with its Net Zero Acceleration Programme.

As referred above, during the year the Group acquired a controlling 80% stake in SSE Pacifico (see note 12). As a result, the Group

has now updated its APMs to clarify how non-controlling interests will be presented in future periods where there are expected to be

material non-controlling interests. The Group believes that removing the non-controlling interest share from all of its profit, capital and

debt measures on a consistent basis is the most simple, understandable and reflective presentation of the Group’s interest in these

businesses. There is no significant impact on adjusted metrics in the year ending 31 March 2022.

On 14 October 2021, the Group disposed of its Gas Production business (see note 12.2), but retained 60% of the decommissioning

provision of the business. The Group has amended its adjusted profit measures to remove the effect of prospective revaluation

adjustments to the decommissioning provision as it is not considered to be part of the Group’s core continuing operations.

The following section explains the key APMs applied by the Group and referred to in these statements:

Profit measures

Group APM Purpose

Closest equivalent

IFRS measure Adjustments to reconcile to primary financial statements

Adjusted EBITDA

(earnings before

interest, tax,

depreciation

and amortisation)

Profit

measure

Operating profit

• Movement on operating and joint venture financing derivatives

(‘certainre-measurements’)

• Exceptional items

• Adjustments to retained Gas Production decommissioning provision

• 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

operating profit

Profit

measure

Operating profit

• Movement on operating and joint venture financing derivatives

(‘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

Alternative Performance Measures

205SSE plc Annual Report 2022

Group APM Purpose

Closest equivalent

IFRS measure Adjustments to reconcile to primary financial statements

Adjusted Profit

Before Tax

Profit

measure

Profit before tax

• Movement on operating and financing derivatives (‘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 non-recurring joint venture refinancing costs

• Share of joint ventures and associates’ tax

Adjusted Net

Finance Costs

Profit

measure

Net finance costs

• Exceptional items

• Movement on financing derivatives

• Share of joint ventures and associates’ interest

• Share of non-recurring joint venture refinancing costs

• Non-controlling share of financing costs

• Interest on net pension assets/liabilities (IAS 19)

Adjusted Current

Tax Charge

Profit

measure

Tax charge

• Share of joint ventures and associates’ tax

• 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

Per Share

Profit

measure

Earnings per share

• Exceptional items

• Adjustments to retained Gas Production decommissioning provision

• Movements on operating and financing derivatives

(‘certain re-measurements’)

• Depreciation and amortisation expense on fair value uplifts

• Interest on net pension assets/liabilities (IAS 19)

• Share of non-recurring joint venture refinancing costs

• Deferred tax including share of joint ventures, associates and non-

controlling interests

Rationale for adjustments to profit measure

1 Movement on operating and financing derivatives (‘certain re-measurements’)

This adjustment can be designated between operating and financing derivatives.

Operating derivatives are contracts where the Group’s Energy Portfolio Management (‘EPM’) function enters into forward commitments

or options to buy or sell electricity, gas and other commodities to meet the future demand requirements of the Group’s Business Energy

and Airtricity operating units, or to optimise the value of the production from SSE Renewables and Thermal generation assets. Certain

of these contracts (predominately purchase contracts) are determined to be derivative financial instruments under IFRS 9 and as such

are required to be recorded at their fair value. Changes in the fair value of those commodity contracts designated as IFRS 9 financial

instruments are reflected in the income statement (as part of ‘certain re-measurements’). The Group shows the change in the fair value

of these forward contracts separately as this mark-to-market movement is not relevant to the underlying performance of its operating

segments due to the volatility that can arise on revaluation. The Group will recognise the underlying value of these contracts as the

relevant commodity is delivered, which will predominantly be within the subsequent 12 to 24 months. Conversely, commodity contracts

that are not recorded as financial instruments under IFRS 9 (predominately sales contracts) are accounted for as ‘own use’ contracts and

are consequently not recorded until the commodity is delivered and the contract is settled. In addition, gas inventory purchased by the

Group’s Gas Storage business for secondary trading opportunities is also held at fair value with gains and losses on re-measurement

recognised as part of ‘certain re-measurements’.

Financing derivatives include all fair value and cash flow interest rate hedges, non-hedge accounted (mark-to-market) interest rate

derivatives, cash flow foreign exchange hedges and non-hedge accounted foreign exchange contracts entered into by the Group to

manage its banking and liquidity requirements as well as risk management relating to interest rate and foreign exchange exposures.

Changes in the fair value of those financing derivatives are reflected in the income statement (as part of ‘certain re-measurements’).

The Group shows the change in the fair value of these forward contracts separately as this mark-to-market movement is not relevant

to the underlying performance of its operating segments.

The re-measurements arising from operating and financing derivatives, and the tax effects thereof, are disclosed separately to aid

understanding of the underlying performance of the Group.

206 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Alternative Performance Measures continued

Rationale for adjustments to profit measure continued

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

On 14 October 2021, the Group disposed of its Gas Production business but retained a 60% share of the decommissioning obligation

of the business. Gas Production was presented as a discontinued operation prior to disposal as the transaction constituted the exit of all

activity in that industry. Future adjustments to the decommissioning obligation will be accounted for through the Group’s consolidated

income statement. The adjustment is 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.

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 of 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 90 , ‘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 and recycling of proceeds from divestments of stakes in its early stage offshore and

international SSE Renewables 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 will recognise a fair value uplift on the remeasurement of its retained equity investment. Those uplifts

will be treated as exceptional (and non-cash) gains in the year of the relevant transactions completing. These uplifts create assets which are

subsequently 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 adjusted depreciation and amortisation expense. The Group’s adjusted operating profit, adjusted profit before tax and

adjusted earnings per share have therefore been adjusted to exclude this additional depreciation and amortisation expense from the fair

value uplift given the charges derived from significant one-off gains which are treated as exceptional when initially recognised.

7 Release of deferred income

The Group deducts the amortisation of deferred income in the year from its adjusted EBITDA metric as it principally relates to customer

contributions towards the build of depreciating assets. As the metric adds back depreciation, the amortisation credit is also deducted.

8 Non-recurring joint venture refinancing costs

The Group’s joint venture investment, Beatrice Offshore Winds Limited (‘BOWL’), completed a refinancing of its debt in the year ended

31 March 2020, which resulted in transaction costs from the original debt of £27.2m being expensed to the income statement of the joint

venture. In addition, £3.5m of costs related to the repayment of the original instrument were incurred. The Group’s 40% share of the

£30.7m expense was £12.3m, which was adjusted from the Group’s adjusted profit before tax and the Group’s adjusted finance costs in

the year ended 31 March 2020 as refinancing of this scale is non-recurring, considered to be specific to this instance and therefore not

representative of normal operations.

9 Interest on net pension assets/liabilities (IAS 19 “Employee Benefits”)

The Group’s interest charges relating to defined benefit pension schemes are derived from the net assets/liabilities of the schemes as

valued under IAS 19. This will mean that the 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.

10 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.

207SSE plc Annual Report 2022

11 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. There is no impact to current or future years but in future the Group will remove the share of profit attributable to

holders of non-controlling equity stakes in these businesses from all of its profit measures, to report to all metrics based on the share of

profits items attributable to the ordinary equity holders of the Group. The adjustment will be 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.

March 2022

Continuing

operations

Reported

£m

Movement on

derivatives

£m

Exceptional

items

£m

Adjustments

to Gas Production

decommissioning

provision

£m

Depreciation

on FV uplifts

£m

Joint venture

interest

and tax

£m

Interest

on net

pension

asset

£m

Deferred

tax

£m

Adjusted

£m

Operating profit 3,755.4 (2 ,097.8) (301.8) 13.1 20.6 147. 3 – – 1,536.8

Net finance costs (273.2) (21.0) (3.2) – – (67.8) (7.6) – (372.8)

Profit before

taxation 3,482.2 (2,118.8) (305.0) 13.1 20.6 79.5 (7.6) – 1,164.0

Taxation (882.8) 408.0 323.7 – – (79.5) – 123.5 (107.1)

Profit after

taxation 2,599.4 (1,710.8) 18.7 13.1 20.6 – (7.6) 123.5 1,056.9

Attributable to

other equity

holders (50.7) – – – – – – – (50.7)

Profit attributable

to ordinary

shareholders 2,548.7 (1,710.8) 18.7 13.1 20.6 – (7.6) 123.5 1,006.2

Number of shares

forEPS 1,055.0 1,055.0

Earnings per share 241.6 95.4

EBITDA

Adjusted

operating profit

from continuing

operations

£m

Share of joint

venture and

associates’

depreciation and

amortisation

£m

Release of

deferred

income

£m

Depreciation

on FV uplifts

£m

Depreciation,

impairment and

amortisation

before

exceptional

charges

£m

Adjusted

EBITDA

£m

Adjusted operating profit

from continuing operations 1,536.8 146.6 (17.6) (20.6) 612.0 2,257. 2

208 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Alternative Performance Measures continued

Rationale for adjustments to profit measure continued

March 2021 (restated*)

Continuing

operations

Reported

£m

Movement on

derivatives

£m

Exceptional

items

£m

Adjustments

to retained

Gas Production

decommissioning

provision

£m

Depreciation

on FV uplifts

£m

Joint venture

interest

and tax

£m

Interest

on net

pension

asset

£m

Deferred

tax

£m

Adjusted

£m

Operating profit 2,654.9 (597.8) (848.9) – 20.6 104.7 – – 1,333.5

Net finance costs (236.9) (55.6) (1.4) – – (82.4) (8.3) – (384.6)

Profit before

taxation 2,418.0 (653.4) (850.3) – 20.6 22.3 (8.3) – 948.9

Taxation (224.3) 125.9 (3.1) – – (22.3) – 37.9 (85.9)

Profit after

taxation 2,193.7 (527.5) (853.4) – 20.6 – (8.3) 37.9 863.0

Attributable to

other equity

holders (46.6) – – – – – – – (46.6)

Profit attributable

to ordinary

shareholders 2,147.1 (527.5) (853.4) – 20.6 – (8.3) 37.9 816.4

Number of shares

for EPS 1,040.9 1,040.9

Earnings per share 206.3 78.4

EBITDA

Adjusted

operating profit

from continuing

operations

£m

Share of joint

venture and

associates’

depreciation and

amortisation

£m

Release of

deferred

income

£m

Depreciation

on FV uplifts

£m

Depreciation,

impairment and

amortisation

before

exceptional

charges

£m

Adjusted

EBITDA

£m

Adjusted operating profit

from continuing operations 1,333.5 143.9 (17.7) (20.6) 556.2 1,995.3

* The comparative Alternative Performance Measures have been restated. See note 1.2.

209SSE plc Annual Report 2022

March 2020 (restated*)

Continuing

operations

Reported

£m

Movement

derivatives

£m

Exceptional

items

£m

Adjustments

to Gas

Production

decommissioning

provision

£m

Depreciation

on FV uplifts

£m

Joint

venture

interest

and tax

£m

Interest

on net

pension

asset

£m

Share of

non-

recurring

joint

venture

financing

costs

£m

Deferred

tax

£m

Adjusted

£m

Operating profit 882.6 40.0 212.1 – 20.6 130.8 – – – 1,286.1

Net finance costs (385.2) 83.0 (2.4) – – (98.9) (6.6) 12.3 – (397.8)

Profit before taxation 497.4 123.0 209.7 – 20.6 31.9 (6.6) 12.3 – 888.3

Taxation (121.5) – (2.3) – – (31.9) – – 67.4 (88.3)

Profit after taxation 375.9 123.0 207.4 – 20.6 – (6.6) 12.3 67.4 800.0

Attributable to other

equity holders (46.5) – – – – – – – – (46.5)

Profit attributable to

ordinary shareholders 329.4 123.0 207.4 – 20.6 – (6.6) 12.3 67.4 753.5

Number of shares

for EPS 1,032.5 1,032.5

Earnings per share 31.9 73.0

EBITDA

Adjusted

operating profit

from continuing

operations

£m

Share of joint

venture and

associates’

depreciation and

amortisation

£m

Release of

deferred

income

£m

Depreciation

on FV uplifts

£m

Depreciation,

impairment and

amortisation

before

exceptional

charges

£m

Adjusted

EBITDA

£m

Adjusted operating profit

from continuing operations 1,286.1 151.4 (14.7) (20.6) 530.1 1,932.3

* The comparative Alternative Performance Measures have been restated. See note 1.2.

Debt measure

Group APM Purpose

Closest equivalent

IFRS measure Adjustments to reconcile to primary financial statements

Adjusted Net Debt

and Hybrid Capital

Debt

measure

Unadjusted

net debt

• Hybrid equity

• Outstanding liquid funds

• Lease obligations

• Non-controlling share of borrowings and cash

Rationale for adjustments to debt measure

12 Hybrid equity

The characteristics of certain hybrid capital securities mean they qualify for recognition as equity rather than debt under IFRS.

Consequently, their coupon payments are presented within dividends rather than within finance costs. As a result, the coupon payments

are not included in SSE’s adjusted profit before tax measure. In order to present total funding provided from sources other than ordinary

shareholders, SSE presents its adjusted net debt measure inclusive of hybrid capital to better reflect the Group’s funding position.

13 Outstanding liquid funds

Outstanding liquid funds are SSE cash balances held by counterparties as collateral at the year end. SSE includes these as cash until they

are utilised for the purposes of calculating adjusted net debt. Loans with a maturity of less than three months are also included in this

adjustment. The Group includes this adjustment in order to better reflect the immediate cash resources to which it has access, which in

turn better reflects the Group’s funding position.

210 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Alternative Performance Measures continued

Rationale for adjustments to debt measure continued

14 Lease obligations

SSE’s reported loans and borrowings include lease liabilities on contracts under the scope of IFRS 16, which are not directly related to the

Treasury managed external debt financing of the Group. The Group excludes these liabilities from its adjusted net debt and hybrid capital

measure to better reflect the Group’s underlying funding position with its primary sources of capital.

15 Debt and cash attributable to non-controlling holders

The Group’s structure includes non-wholly owned but controlled subsidiaries which are consolidated within the financial statements

of the Group under IFRS. There is no impact to current or prior years but in future the Group will remove the share of debt and cash in

these subsidiaries proportionately attributable to the non-controlling interest holders from its adjusted net debt and hybrid capital metric

to present net debt attributable to ordinary equity holders of the Group.

March 2022

£m

March 2021

£m

March 2020

£m

Unadjusted net debt (8,015.4) (7,810.4) (10,007.8)

Outstanding liquid funds 74.7 (37.1) 256.4

Lease obligations 393.5 421.0 455.2

Adjusted Net Debt (7,547.2) (7,426.5) (9,296.2)

Hybrid equity (1,051.0) (1,472.4) (1,169.7)

Adjusted Net Debt and Hybrid Capital (8,598.2) (8,898.9) (10,465.9)

Capital measures

Group APM Purpose

Closest equivalent

IFRS measure Adjustments to reconcile to primary financial statements

Adjusted Investment and

Capital Expenditure

Capital

measure

Capital additions

to intangible

assets and

property, plant

and equipment

• Customer funded additions

• Allowances and certificates

• Additions acquired through business combinations

• Disposed or impaired additions

• Joint ventures and associate additions funding

• Non-controlling share of capital expenditure

• Refinancing proceeds/refunds

Adjusted Investment,

Capital and Acquisition

Expenditure

Capital

measure

Capital additions

to intangible

assets and

property, plant

and equipment

• Customer funded additions

• Allowances and certificates

• Additions acquired through business combinations

• Disposed or impaired additions

• Joint ventures and associates’ additions funding

• Non-controlling share of capital expenditure

• Refinancing proceeds/refunds

• Acquisition cash consideration

Adjustments to capital measure

16 Customer funded additions

Customer funded additions represents additions to electricity and other networks funded by customer contributions. Given these are

directly funded by customers, these have been excluded to better reflect the Group’s underlying investment position.

17 Allowances and certificates

Allowances and certificates consist of purchased carbon emissions allowances and generated or purchased renewable obligations

certificates (ROCs) and are not included in the Group’s ‘capital expenditure and investment’ APM to better reflect the Group’s investment

in enduring operational assets.

18 Additions acquired through business combinations

Where the Group acquires an early stage development company, which is classified as the acquisition of an asset, or group of assets and

not a business, the acquisition is treated as an addition to intangible assets or property, plant and equipment and is included within ‘adjusted

investment and capital expenditure’. Where the Group acquires an established business requiring a fair value assessment in line with the

principles of IFRS 3 ‘Business Combinations’, the fair value of consolidated tangible or intangible assets are excluded from the Group’s

‘adjusted investment and capital expenditure’, as they are not direct capital expenditure by the Group. However, these are included in the

Group’s new ‘adjusted investment, capital and acquisition expenditure’ metric, see 24 below.

211SSE plc Annual Report 2022

19 Additions subsequently disposed/impaired

In the current year there were capex additions of £13.9m related to the Gas Production business, which was disposed on 14 October

2021. In the prior year the Group funded £19.7m of capex additions in relation to the Seagreen windfarm prior to part disposal. On

3 June 2020, the Group disposed of a 51% stake in Seagreen 1, therefore the capex incurred prior to that date has been excluded from

the Group’s net adjusted investment and capital expenditure metric. In the year ended 31 March 2020, there were additions of £44.6m in

the Group’s Gas Production segment which were subsequently impaired following the annual impairment assessment. This adjustment

also includes any subsequently derecognised development expenditure.

20 Joint ventures and associates’ additions funding

Joint ventures and associates’ additions included in the Group’s capital measures represent the direct loan or equity funding provided by

the Group to joint venture and associate arrangements in relation to capital expenditure projects. This has been included to better reflect

the Group’s use of directly funded equity accounted vehicles to grow the Group’s asset base. Asset additions funded by project finance

raised within the Group’s joint ventures and associates is not included in this adjustment.

21 Non-controlling share of capital expenditure

The Group’s structure includes non-wholly owned but controlled subsidiaries which are consolidated within the financial statements of

the Group under IFRS. In future, the Group will remove the share of capital additions attributable proportionately to these equity holders

from its “adjusted investment and capital expenditure” and “adjusted investment, capital and acquisition expenditure” metrics. This is

consistent with the adjustments noted elsewhere related to these non-controlling interests. This has no impact on the current or prior

year metrics.

22 Refinancing proceeds/refunds

The Group’s model for developing large scale capital projects within joint ventures and associates involves project finance being raised

within those entities. Where the Group funds early stage capex which is then subsequently reimbursed to SSE following the receipt of

project finance within the vehicle, the refinance proceeds are included in the Group’s net adjusted investment and capital expenditure

metric. This is consistent with the inclusion of the initial investment in the metric as explained at 18, above. In the year ended 31 March

2021, the Group received reimbursed capex of £246.1m in relation to Seagreen windfarm and £182.5m in relation to Doggerbank

windfarm. These receipts have been deducted from the Group’s adjusted investment and capital expenditure metric.

23 Lease additions

Additions of right of use assets under the Group’s IFRS 16 compliant policies for lease contracts are excluded from the Group’s adjusted

capital measures as they do not represent directly funded capital investment. This is consistent with the treatment of lease obligations

explained at 14, above.

24 Acquisition cash consideration in relation to business combinations

The Group has outlined a significant investment programme which will partly be achieved through the acquisition of businesses with

development opportunities for the Group. The cash consideration paid for these entities is included within the Group’s new adjusted

investment, capital and acquisition expenditure metric as it provides stakeholders an accurate basis of cash investment into the Group’s

total development pipeline and is consistent with the reporting of the Group’s Net Zero Acceleration Programme.

March 2022

£m

March 2021

£m

March 2020

£m

Capital additions to intangible assets 921.0 701.3 973.6

Capital additions to property, plant & equipment 1,398.8 1,102.5 1,097.6

Capital additions to intangible assets and property, plant & equipment 2,319.8 1,803.8 2,071.2

Customer funded additions (91.3) (61.8) (110.7)

Allowances and certificates (544.5) (509.0) (652.7)

Additions through business combinations (197.8) – (26.4)

Additions subsequently disposed/impaired (13.9) (19.7) (44.6)

Joint ventures and associates’ additions 682.5 172.7 167.1

Refinancing proceeds/refunds (136.7) (428.6) –

Lease asset additions (85.7) (45.4) (46.5)

Adjusted Investment and Capital expenditure 1,932.4 912.0 1,357.4

Acquisition cash consideration 141.3 – –

Adjusted Investment, Capital and Acquisition Expenditure 2,073.7 912.0 1,357.4

212 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Impact of discontinued operations on the Group’s APMs

The following metrics have been adjusted in all periods presented to exclude the contribution of the Group’s investment in Scotia Gas

Networks Limited (“SGN”) which was disposed on 22 March 2022 (see note 12) and Group’s Gas Production operations which were

disposed on 14 October 2021:

• Adjusted EBITDA;

• Adjusted operating profit;

• Adjusted net finance costs;

• Adjusted profit before tax;

• Adjusted current tax charge; and

• Adjusted earnings per share.

‘Adjusted net debt and hybrid capital’; ‘adjusted investment and capital expenditure’; and ‘adjusted investment, capital and acquisition

expenditure’ have not been adjusted as the Group continues to fund the discontinued operations until the date of disposal.

The following table summarises the impact of excluding discontinued operations from the APMs of the continuing activities of the Group

in current and prior years:

March 2022

£m

March 2021

(restated*)

£m

March 2020

(restated*)

£m

Adjusted EBITDA of SSE Group (including discontinued operations) 2,390.7 2,262.9 2,281.0

Less: SSE Energy Services profit – – (32.7)

Less: Gas Production profit (101.4) (33.0) (56.9)

Less: SGN profit (32.1) (234.6) (259.1)

Adjusted EBITDA of continuing operations

APM

2,257.2 1,995.3 1,932.3

Adjusted operating profit of SSE Group (including discontinued operations) 1,659.2 1,539.5 1,546.9

Less: SSE Energy Services profit – – (32.7)

Less: Gas Production profit (101.4) (33.0) (25.8)

Less: SGN profit (21.0) (173.0) (202.3)

Adjusted operating profit of continuing operations

APM

1,536.8 1,333.5 1,286.1

Adjusted net finance costs of SSE Group (including discontinued operations) 377.6 443.9 471.6

Less: Gas Production (0.1) (2.3) (6.6)

Less: SGN (4.7) (57.0) (67. 2)

Adjusted net finance costs of continuing operations

APM

372.8 384.6 397.8

Adjusted profit before tax of SSE Group (including discontinued operations) 1,281.6 1,095.6 1,075.3

Less: SSE Energy Services – – (32.7)

Less: Gas Production (101.3) (30.7) (19.2)

Less: SGN (16.3) (116.0) (135.1)

Adjusted profit before tax of continuing operations

APM

1,164.0 948.9 888.3

Adjusted current tax of SSE Group (including discontinued operations) 109.4 107.8 110.3

Less: SSE Energy Services current tax credit – – 3.9

Less: SGN current tax charge (2.3) (21.9) (25.9)

Adjusted current tax of continuing operations

APM

107. 1 85.9 88.3

Adjusted earnings per share of SSE Group (including discontinued operations) 106.2 90.5 89.0

Less: SSE Energy Services earnings per share – – (3.6)

Less: Gas Production earnings per share (9.6) (3.0) (1.8)

Less: SGN earnings per share (1.2) (9.1) (10.6)

Adjusted earnings per share of continuing operations

APM

95.4 78.4 73.0

* The comparative Alternative Performance Measures have been restated. See note 1.2.

The remaining APMs presented by the Group are unchanged in all periods presented by the discontinued operations.

Alternative Performance Measures continued

213SSE plc Annual Report 2022

Financial statements

Primary statements

Consolidated income statement 214

Consolidated statement of comprehensive income 215

Consolidated balance sheet 216

Consolidated statement of changes in equity 217

Consolidated cash flow statement 218

Notes to the consolidated financial statements

1. General information and basis of preparation 219

2. New accounting policies and reporting changes 220

3. Adjusted accounting measures 220

4. Accounting judgements and estimation uncertainty 222

5. Segmental information 224

6. Other operating income and cost 238

7. Exceptional items and certain re-measurements 239

8. Directors and employees 245

9. Finance income and costs 247

10. Taxation 248

11. Dividends and earnings per share 251

12. Acquisitions, disposals and held-for-sale assets 252

13. Intangible assets 258

14. Property, plant and equipment 260

15. Impairment testing 261

16. Investments 268

17. Inventories 271

18. Trade and other receivables 271

19. Trade and other payables 272

20. Provisions 272

21. Sources of finance 274

22. Equity 280

23. Retirement benefit obligations 282

24. Financial instruments 288

25. Commitments and contingencies 289

26. Post balance sheet events 289

Accompanying information

A1. Basis of consolidation and significant accounting policies 290

A2. Taxation 301

A3. Related undertakings 303

A4. Joint ventures and associates 308

A5. Related party transactions 311

A6. Financial risk management 311

A7. Fair value of financial instruments 321

A8. Hedge accounting 323

Company financial statements

Balance sheet 324

Statement of changes in equity 325

Notes to the Company financial statements

1. Principal accounting policies 326

2. Supplementary financial information 327

3. Investments in associates and joint ventures 327

4. Subsidiary undertakings 327

5. Trade and other receivables 327

6. Trade and other payables 327

7. Taxation 328

8. Loans and borrowings 328

9. Equity 330

10. Retirement benefit obligations 331

11. Financial instruments 334

12. Commitments and contingencies 334

13. Provisions 335

214 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Consolidated income statement

For the year ended 31 March 2022

Note

2022 2021

Before

exceptional

items and

certain re-

measurements

£m

Exceptional

items and

certain re-

measurements

(note 7)

£m

Total

£m

Before

exceptional

items and

certain

re-

measurements

(restated*)

£m

Exceptional

items and

certain

re-

measurements

(note 7)

(restated*)

£m

Total

(restated*)

£m

Continuing operations

Revenue 5 8,6 08 . 2 – 8,608 . 2 6,8 26 .4 – 6 ,8 26. 4

Cost of sales 6 (6, 310.8) 2 ,0 97. 8 (4, 213 .0) (4 , 73 2 .7) 598 .6 (4,13 4.1)

Gross profit 2 , 2 9 7. 4 2 ,0 9 7. 8 4,39 5. 2 2,093.7 598 .6 2 ,692. 3

Operating costs 6 (1,118.5) 2 97. 5 (821 .0) (1,198.4) (1 2 7. 1) (1, 32 5. 5)

Other operating income 6 6 7. 1 4. 3 71 .4 268.7 976 . 0 1 , 24 4 . 7

Operating profit before joint ventures

and associates 1 , 24 6 .0 2 , 39 9.6 3,6 45 .6 1,1 64. 0 1 ,4 4 7. 5 2 ,61 1 . 5

Joint ventures and associates:

Share of operating profit 2 5 7. 1 – 2 5 7. 1 149.0 – 14 9.0

Share of interest (6 7. 8) – (6 7. 8) (82. 4) – (82.4)

Share of movement on derivatives – – – – (0.8) (0.8)

Share of tax (46 . 3) (33 . 2) (7 9. 5) (22.4) – (22.4)

Share of profit on joint ventures and associates 16 143 .0 (33 . 2) 10 9.8 4 4. 2 (0. 8) 43. 4

Operating profit from continuing operations 5 1 , 3 89. 0 2 ,366.4 3,755 .4 1 , 208 . 2 1,4 46 .7 2, 65 4 .9

Finance income 9 79.0 24 . 2 1 03. 2 78. 2 57 .0 1 35. 2

Finance costs 9 (3 76 . 4) – (376 . 4) (37 2.1) – (372.1)

Profit before taxation 1 ,091 .6 2 , 390 .6 3, 48 2.2 914 . 3 1 , 503 . 7 2 ,41 8 . 0

Taxation 10 (1 51 . 1) (7 31 .7) (882 . 8) (101 . 5) (122. 8) (22 4.3)

Profit for the year from continuing operations 940. 5 1 ,658 . 9 2, 599.4 81 2. 8 1 , 38 0 .9 2,19 3.7

Discontinued operations

Profit from discontinued operation, net of tax 12 1 16. 3 366.4 482 .7 1 27. 5 1.6 1 29. 1

Profit for the year 1 ,056 . 8 2,02 5. 3 3,08 2 . 1 9 40. 3 1 , 382. 5 2, 322.8

Attributable to:

Ordinary shareholders of the parent 11 1 ,0 06 . 1 2 ,025 . 3 3 ,031 . 4 8 93 . 7 1 , 382. 5 2 , 2 76 . 2

Other equity holders 50.7 – 50.7 46 .6 – 4 6.6

Earnings/(loss) per share

Basic (pence) 11 2 8 7. 3 2 18.7

Diluted (pence) 11 286 .8 2 18. 3

Earnings per share – continuing operations

Basic (pence) 11 241 .6 206 . 3

Diluted (pence) 11 241 . 1 206 .0

* The comparative Consolidated Income Statement has been restated. See note 1.2.

The accompanying notes are an integral part of these financial statements.

215SSE plc Annual Report 2022

2022

£m

2021

£m

(restated*)

Profit for the year

Continuing operations 2, 599.4 2,19 3.7

Discontinued operations 482 .7 1 2 9. 1

3,082 . 1 2, 322.8

Other comprehensive income:

Items that will be reclassified subsequently to profit or loss:

Net gains/(losses) on cash flow hedges 22. 9 (44 .7)

Transferred to assets and liabilities on cash flow hedges 11 .2 (5. 1)

Taxation on cashflow hedges (4. 4) 8.5

29. 7 (41 . 3)

Share of other comprehensive gain of joint ventures and associates, net of taxation 181 .4 25.0

Exchange difference on translation of foreign operations (3. 2) (43. 3)

Gain on net investment hedge 9.4 3 7. 3

2 1 7. 3 (2 2. 3)

Items that will not be reclassified to profit or loss:

Actuarial gain/(loss) on retirement benefit schemes, net of taxation 1 24 .7 (1 2.8)

Share of other comprehensive (loss)/income of joint ventures and associates, net of taxation (1.7) (2 3. 3)

Gains on revaluation of investments in equity instruments, net of taxation – 1.1

123 .0 (35.0)

Other comprehensive gain/(loss), net of taxation 340. 3 (57.3)

Total comprehensive income for the year 3,422 .4 2, 265 . 5

Total comprehensive income for the year arises from:

Continuing operations 2 ,91 2 .8 2,155.0

Discontinued operations

Items that will be reclassified subsequently to profit or loss:

Share of other comprehensive gain of joint venture and associates, net of taxation 28.6 4.7

Items that will not be reclassified to the profit or loss:

Share of other comprehensive loss of joint ventures, net of taxation (1 .7) (23 . 3)

Other comprehensive gain/(loss) from discontinued operations 26.9 (18 .6)

Profit from discontinued operations 482 .7 1 2 9. 1

Total comprehensive income from discontinued operations 50 9.6 1 10. 5

Total comprehensive income for the year 3,422 .4 2, 265 . 5

Attributable to:

Ordinary shareholders of the parent 3, 371 .7 2, 2 18 .9

Other equity holders 50.7 46.6

3,422 .4 2, 265 . 5

* The comparative Consolidated Statement of Other Comprehensive Income has been restated. See note 1.2.

The accompanying notes are an integral part of this interim statement.

Consolidated statement of comprehensive income

For the year ended 31 March 2022

216 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Consolidated balance sheet

As at 31 March 2022

Note

2022

£m

2021

£m

Assets

Property, plant and equipment 14 14,618.7 13,2 54.3

Goodwill and other intangible assets 13 1 , 1 2 7. 8 8 41 . 3

Equity investments in joint ventures and associates 16 1 , 2 39. 5 1,64 3.5

Loans to joint ventures and associates 16 736.9 554 . 3

Other investments 16 8.7 3.6

Other receivables 18 1 36 .4 1 1 5 .9

Derivative financial assets 24 371 .7 114 . 7

Retirement benefit assets 23 584.9 543 . 1

Non-current assets 18 , 824 .6 17 ,070.7

Intangible assets 13 4 59. 3 3 74 . 9

Inventories 17 266 .6 2 3 4 .9

Trade and other receivables 18 2, 21 1 .0 1,4 88. 2

Current tax asset 10 8.8 1 2.7

Cash and cash equivalents 21 1 ,049. 3 1 ,60 0. 2

Derivative financial assets 24 2 ,9 41 . 8 47 0. 9

Assets held for sale 12 – 33 9. 1

Current assets 6, 936 . 8 4 , 520 .9

Total assets 25 ,76 1 . 4 2 1 , 591 . 6

Liabilities

Loans and other borrowings 21 1 ,19 0.8 9 3 7. 6

Trade and other payables 19 2 ,6 72 . 6 1 ,9 87. 3

Current tax liabilities 10 – 12. 8

Provisions 20 93 . 3 79. 3

Derivative financial liabilities 24 701 . 5 238.7

Liabilities held for sale 12 – 253.5

Current liabilities 4,658.2 3 , 50 9. 2

Loans and other borrowings 21 7, 87 3 . 9 8, 47 3 .0

Deferred tax liabilities 10 1 ,6 45 .6 7 74. 3

Trade and other payables 19 842 . 4 722.5

Provisions 20 1 , 0 1 7. 9 7 93 . 3

Retirement benefit obligations 23 – 186. 1

Derivative financial liabilities 24 5 4 9.6 452 .1

Non-current liabilities 1 1 ,929.4 1 1 ,4 01 . 3

Total liabilities 1 6 , 5 8 7. 6 14 ,9 10. 5

Net assets 9, 17 3 . 8 6 ,681 . 1

Equity:

Share capital 22 536 . 5 524 . 5

Share premium 835. 1 8 4 7. 1

Capital redemption reserve 49.2 49. 2

Hedge reserve 7 7. 5 (1 33 .6)

Translation reserve 6.6 0.4

Retained earnings 6 , 57 7. 3 3 ,92 1 . 1

Equity attributable to ordinary shareholders 8 , 0 8 2.2 5,208.7

Hybrid equity 22 1 ,0 51 .0 1 , 472 . 4

Attributable to non-controlling interests 40.6 –

Total equity 9, 17 3 . 8 6 ,681 . 1

The accompanying notes are an integral part of the financial statements.

These financial statements were approved by the Board of Directors on 24 May 2022 and signed on their behalf by:

Gregor Alexander, Sir John Manzoni,

Finance Director Chairman

SSE plc

Registered No: SC117119

217SSE plc Annual Report 2022

capital

£m

premium

£m

Capital

redemption

reserve

£m

Hedge

reserve

£m

Translation

reserve

£m

Retained

earnings

£m

Total

attributable

to ordinary

shareholders

£m

Hybrid

equity

£m

Total equity

before

non-

controlling

interest

£m

Non-

controlling

interest

£m

Total

equity

£m

At 1 April 2021 524. 5 8 47. 1 49. 2 (1 33.6) 0.4 3 ,921 . 1 5, 208.7 1 , 47 2 . 4 6,68 1 . 1 – 6,6 81 . 1

Profit for the year – – – – – 3 ,031 . 4 3 ,031 . 4 50.7 3,0 82 . 1 – 3,082 . 1

Other

comprehensive

income – – – 211 . 1 6.2 123.0 340. 3 – 340. 3 – 340. 3

Total

comprehensive

income for

the year – – – 211 . 1 6.2 3,15 4.4 3, 371 .7 50.7 3,422 .4 – 3,42 2 .4

Dividends to

shareholders – – – – – (8 62 . 3) (862 . 3) – (8 62 . 3) – (862 . 3)

Scrip dividend

share issue 12 .0 (12 . 0) – – – 355 .7 355 .7 – 355.7 – 355 .7

Issue of shares – – – – – 6.3 6.3 – 6. 3 – 6.3

Distributions

to Hybrid

equity holders – – – – – – – (50.7) (50. 7) – (50.7)

Redemption of

hybrid equity – – – – – (4.6) (4. 6) (421 . 4) (426.0) – (426.0)

Credit in respect

of employee

share awards – – – – – 20.8 20.8 – 20. 8 – 20.8

Investment

in own shares – – – – – (14.1) (14. 1) – (14. 1) – (14. 1)

Acquisition of

subsidiary – – – – – – – – – 40.6 40.6

At 31 March 2022 536. 5 835. 1 49. 2 7 7. 5 6.6 6 , 57 7. 3 8, 08 2.2 1 ,051 .0 9, 1 33 . 2 40 .6 9, 17 3 . 8

capital

£m

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

£m

At 1 April 2020 523. 1 875.6 49. 2 (111.1) 6.4 2 , 4 07. 2 3,750.4 1 , 169.7 4,92 0. 1

Profit for the year – – – – – 2, 2 76 . 2 2, 2 76 . 2 4 6.6 2, 322.8

Other comprehensive loss – – – (16 . 3) (6.0) (35 .0) (57 .3) – (57.3)

Total comprehensive income

for the year – – – (16 . 3) (6 .0) 2,2 41.2 2 , 2 18 .9 46 .6 2, 265 . 5

Dividends to shareholders – – – – – (836.4) (836 .4) – (836.4)

Scrip dividend related

share issue 1 .4 (1 .4) – – – 39.0 39. 0 – 39. 0

Distributions to Hybrid equity

holders – – – – – – – (4 6 .6) (4 6 .6)

Issue of Hybrid equity – – – – – – – 1 ,0 51 .0 1 ,0 51 .0

Redemption of Hybrid equity – – – – – (1 .7) (1.7) (74 8 . 3) (750.0)

Credit in respect of employee

share awards – – – – – 1 9.7 1 9.7 – 1 9. 7

Investment in own shares (i) – (2 7. 1) – – – 24 . 6 (2 .5) – (2. 5)

Adjustment in relation to

historic remeasurement

of financial instruments,

net of tax (ii) – – – (6. 2) – 2 7. 5 21. 3 – 21 . 3

At 31 March 2021 5 24 . 5 8 47. 1 49. 2 (1 33.6) 0.4 3 ,92 1 . 1 5,208.7 1 ,47 2 . 4 6,6 81 .1

(i) Investment in own shares is the purchase of own shares less the settlement of treasury shares for sharesave schemes. This includes a reclassification between

share premium and retained earnings of £27 .1m for previous treasury share issuances to employees.

(ii) Following review of the recognition of certain derivative financial instruments at inception, a revision to the Retained Earnings, Loans and Borrowings and the

Hedge Reserve was recorded during the year. This revision arose through review of the Group’s contractual exposure on certain swap arrangements, as well as

mark-to-market charges on inception previously recognised through the Income Statement. The cumulative effect on opening reserves on 1 April 2020 was an

increase of £21.3m, and the single largest line item impacted was Loans and Borrowings which decreased by £58.8m. It has been assessed that the cumulative

effect of this revision does not materially impact the financial statements for the year ended 31 March 2020.

Consolidated statement of changes in equity

For the year ended 31 March 2022

218 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Consolidated cash flow statement

For the year ended 31 March 2022

Note

2022

£m

2021

£m

(restated*)

Operating profit – continuing operations 3, 755. 4 2,6 5 4.9

Operating profit – discontinued operations 12 (100. 5) 1 21 .6

Operating profit – total operations 3,65 4 .9 2 , 7 76 . 5

Less share of loss/(profit) of joint ventures and associates (28 .7) (1 32.0)

Operating profit before jointly controlled entities and associates 3,626 . 2 2,6 4 4. 5

Pension service charges less contributions paid 23 (23.0) (22.8)

Movement on operating derivatives 24 (2 , 10 0.4) (590 . 1)

Depreciation, amortisation, write downs and impairments 303 . 2 6 3 7. 9

Impairment of joint venture investment 10 6 .9 –

Charge in respect of employee share awards (before tax) 20.8 18.1

Profit on disposal of assets and businesses 7,12 (4 8 . 2) (1 , 2 2 7.9)

Release of provisions 20 (1 .6) (4. 1)

Release of deferred income 6 (17 .6) (1 7.7 )

Cash generated from operations before working capital movements 1 ,866. 3 1 ,43 7 .9

Increase in inventories (24 .4) (71 .7)

(Increase)/decrease in receivables (625 .6) 1 55. 3

Increase in payables 538. 3 420 .0

Increase in provisions 61 . 3 36. 1

Cash generated from operations 1 ,81 5. 9

1,977.6

Dividends received from investments 16 1 7 7. 0 1 91 .1

Interest paid (273. 5) (288.7)

Taxes paid (91 . 5) (62. 8)

Net cash from operating activities 1 ,6 2 7.9 1 , 8 1 7. 2

Purchase of property, plant and equipment 5 (1 , 273.6) (985 .0)

Purchase of other intangible assets 5 (182 . 2) (19 2.3)

Deferred income received 12. 3 11.2

Proceeds from disposals 12 1 , 366. 9 1,73 4.8

Cash disposed from disposals 12 – (1 72.8)

Purchase of businesses and subsidiaries 12 (145. 3) –

Joint venture development expenditure refunds 16 1 36 .7 1 82. 5

Loans and equity provided to joint ventures and associates 16 (6 76 .0) (18 8 .9)

Loans and equity repaid by joint ventures 16 10.9 5 4.2

Increase in other investments 16 5 .4 –

Net cash from investing activities (7 44.9) 4 43 .7

Proceeds from issue of share capital 22 6. 3 1 0.4

Dividends paid to company’s equity holders 11 (5 06.6) (7 9 7. 4)

Hybrid equity dividend payments 22 (50.7) (46 .6)

Employee share awards share purchase 22 (14. 1) (1 2 .9)

Issue of hybrid instruments 22 – 1 ,0 51 . 0

Redemption of hybrid instruments 22 (426.0) (750.0)

New borrowings 21 506. 1 1 ,66 8. 5

Seagreen development expenditure refinancing proceeds 21 – 24 6 . 1

Repayment of borrowings 21 (960. 1) (2,189 .3)

Settlement of cashflow hedges 11 .2 (5. 1)

Net cash from financing activities (1 ,433 . 9) (825. 3)

Net (decrease)/increase in cash and cash equivalents (550. 9) 1 , 435 . 6

Cash and cash equivalents at the start of year 21 1 ,6 00. 2 16 4.6

Net (decrease)/increase in cash and cash equivalents (550. 9) 1 , 435 . 6

Cash and cash equivalents at the end of year 1 ,049. 3 1 ,60 0. 2

The accompanying notes are an integral part of these financial statements.

* The comparative consolidated cash flow statement has been restated. See note 1.2.

219SSE plc Annual Report 2022

1. General information and basis of preparation

1.1. General information

SSE plc (the Company) is a company domiciled in Scotland. The address of the registered office is given on the back cover. The Group’s

operations and its principal activities are set out in the Strategic Report. The consolidated financial statements for the year ended 31 March

2022 comprise those of the Company and its subsidiaries (together referred to as the Group). The Company financial statements present

information about the Company as a separate entity and not about the Group, these can be seen on pages 324 to 335 .

1.2. Basis of preparation

Statement of compliance

The financial statements were authorised for issue by the directors on 24 May 2022. The financial statements have been prepared in

accordance with UK adopted International Accounting Standards.

Going concern

The Directors consider that the Group has adequate resources to continue in operational existence for the period to 31 December 2023.

The financial statements are therefore prepared on a going concern basis.

In addition, further details of the Group’s liquidity position and going concern review are provided in A6 Accompanying Information to

the Financial Statements on page 312 .

Basis of measurement

The financial statements of the Group are prepared on the historical cost basis except for certain gas inventory, derivative financial

instruments, financial instruments designated at fair value through profit or loss or other comprehensive income on initial recognition,

assets of the Group pension schemes, all of which are measured at their fair value, and liabilities of the Group pension schemes which

are measured using the projected unit credit method. The directors believe the financial statements present a true and fair view. The

financial statements of the Group are presented in pounds sterling. The basis for including operations and transactions conducted in

currencies other than pounds sterling is provided in A1 Accompanying Information to the Financial Statements on page 290 .

Use of estimates and judgements

The preparation of financial statements conforming with adopted IFRS requires the use of certain accounting estimates. It also requires

management to exercise judgement in the process of applying the accounting policies. The areas involving a higher level of judgement

or estimation are summarised at pages 222 to 224 .

Changes to presentation – prior year adjustments

Discontinued operations

On 2 August 2021, the Group announced it had agreed to sell its 33.3% stake in gas distribution operator SGN to a consortium comprising

existing SGN shareholders Ontario Teachers’ Pension Plan Board and Brookfield Super-Core Infrastructure Partners for cash consideration

of £1,225m. The transaction completed on 22 March 2022, with the Group recognising an exceptional gain on disposal of £576.5m within

discontinued activities. The Group assessed that the investment met the criteria to be classified as held for sale on 11 June 2021 when an

Exclusivity Agreement was signed by the consortium. Accordingly, from 11 June 2021 the Group ceased to equity account for its investment

in SGN on designation as held for sale. As the investment in SGN comprised a separate single major line of business, the investment was

also classified as a discontinued operation. Therefore, comparative information for the year ended 31 March 2021 has been restated. The

impact of reclassification of the SGN investment to discontinued operations has been to reduce adjusted operating profit for continuing

operations for March 2021 by £173.0m; reduce adjusted profit before tax for continuing operations for March 2021 by £116.0m; and reduce

adjusted earnings per share for continuing operations for March 2021 by 9.1p. Total results for the Group in the prior year are unchanged.

Segments

In accordance with the requirements of IFRS 8 ‘Operating Segments’ the Group has aligned its segmental disclosures with its revised

internal reporting following changes to the Group’s structure and operations. These segments are used internally by the Group Executive

Committee to in order to assess operating performance and to make decisions on how to allocate capital. Consequently, the segmental

results reported in the Group’s operating segments have been restated with effect from 1 April 2021. Following the Group’s sale of its

Contacting and Rail business to Aurelius Group, the primary retained activities of the Enterprise business is Distributed Energy which will

develop and provide the Group’s solar and battery storage operations and focus on distributed generation, heat and cooling networks,

smart buildings and EV charging. Accordingly, the result from the Group’s out of areas networks business and Neos Networks Limited

joint venture will now be reported within SSEN Distribution and Corporate Unallocated respectively. Comparative segmental information

in note 5 has been represented to reflect the change to these segments. The impact of the restatements are an increase to reported

revenue of SSEN Distribution (March 2021: £25.0m) and a decrease to the reported revenue of Distributed Energy (March 2021: £25.0m),

and an increase to the adjusted operating profit of SSEN Distribution (March 2021 £8.5m), an increase to the adjusted operating loss of

Distributed Energy (March 2021: £5.7m) and an increase to the adjusted operating loss of Corporate Unallocated (March 2021: £2.8m).

Changes to estimates

There have been no changes to the basis of accounting estimates during the current and prior year.

Notes to the consolidated financial statements

For the year ended 31 March 2022

220 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

2. New accounting policies and reporting changes

The principal accounting policies applied in the preparation of these financial statements are set out below and in the A1 Accompanying

Information to the Financial Statements on pages 290 to 300 .

2.1 New standards, amendments and interpretations effective or adopted by the Group

Phase 2 of the Interest Rate Benchmark Reform became effective for the Group from 1 April 2021. Under Phase 2, provided that the new

basis for calculating cash flows is economically equivalent to the previous basis, reliefs permit hedge accounting relationships to continue

unaffected. The Group has applied these reliefs to continue hedge accounting on affected instruments and therefore adoption of the

amendment had no impact on the financial statements.

The amendment to IFRS 16 ‘Covid-19 Related Rent Concessions beyond 30 June 2021’ had no impact on the financial statements.

2.2 New standards, amendments and interpretations issued, but not yet adopted by the Group

A number of standards, amendments and interpretations have been issued but not yet adopted by the Group within these financial

statements, because application is not yet mandatory or because UK adoption remains outstanding at the date the financial statements

were authorised for issue.

Amendments to IAS 16 ‘Property, Plant and Equipment: Proceeds Before Intended Use’ is effective from 1 January 2022 and was

endorsed by the UK Endorsement Board in April 2022, subsequent to the balance sheet date. The standard will be applied from 1 April

2022, with retrospective application in periods presented. During the year ended 31 March 2022, the Group earned pre-commissioning

revenue during the testing and commissioning phases of its Keadby 2 CCGT and Gordonbush windfarm extension project. Restatement

of prior year comparatives will not have a material impact on reported results in those periods.

IFRS 17 ‘Insurance contracts’ is expected to be effective from 1 January 2023 (1 April 2023 for the Group) but remains subject to UK

endorsement. The Group’s initial expectation is that adoption of this standard will not have a material impact on the Group’s consolidated

financial statements.

There are a number of other interpretations and amendments issued but not yet effective at 31 March 2022. These are not anticipated to

have a material impact on the Group’s consolidated financial statements.

3. Adjusted accounting measures

The Group applies the use of adjusted accounting measures or alternative performance measures (‘APMs’) throughout the Annual Report

and Financial Statements. These measures enable the Directors to present the underlying performance of the Group and its segments to

the users of the statements in a consistent and meaningful manner. The adjustments applied and certain terms such as ‘adjusted operating

profit’, ‘adjusted earnings per share’, ‘adjusted EBITDA’, ‘adjusted investment and capital expenditure’, ‘adjusted investment, capital and

acquisition expenditure’ and ‘adjusted net debt and hybrid equity’ that are not defined under IFRS and are explained in more detail below.

In addition, the section ‘Alternative Performance Measures’ at page 204  provides further context and explanation of these terms.

3.1 Adjusted measures

The Directors assess the performance of the Group and its reportable segments based on ‘adjusted measures’. These measures are used

for internal performance management and are believed to be appropriate for explaining underlying performance to users of the accounts.

These measures are also deemed useful for ordinary shareholders of the Company and for other stakeholders.

The performance of the reportable segments is reported based on adjusted profit before interest and tax (‘adjusted operating profit’).

This is reconciled to reported profit before interest and tax by adding back exceptional items and certain re-measurements (see note 3.2

below), depreciation on fair value uplifts, the share of operating profit attributable to non-controlling interests, adjustments to the

retained Gas Production decommissioning provision and after the removal of interest and taxation on profits from equity-accounted

joint ventures and associates.

The performance of the Group is reported based on adjusted profit before tax which excludes exceptional items and certain re-

measurements (see note 3.2 below), depreciation on fair value uplifts, the share of profit before tax attributable to non-controlling

interests, non-recurring financing costs in joint ventures, the net interest costs associated with defined benefit schemes, adjustments to

the retained Gas Production decommissioning provision and taxation on profits from equity-accounted joint ventures and associates.

The interest charges or credits on defined benefit schemes removed are non-cash and are subject to variation based on actuarial

valuations of scheme liabilities.

The Group also uses adjusted earnings before interest, taxation, depreciation and amortisation (‘adjusted EBITDA’) as an alternative

operating performance measure which acts as a management proxy for cash generated from operating activities. This does not take

into account the rights and obligations that SSE has in relation to its equity-accounted joint ventures and associates. This measure

excludes exceptional items and certain re-measurements (see note 3.2 below), the depreciation charged on fair value uplifts, the share

of EBITDA attributable to non-controlling interests, adjustments to the retained Gas Production decommissioning provision, non-

recurring financing costs in joint ventures, the net interest costs associated with defined benefit schemes, depreciation and amortisation

from equity-accounted joint ventures and associates and interest and taxation on profits from equity-accounted joint ventures and

associates. For the purpose of calculating the ‘Net Debt to EBITDA’ metric referred at page 90 , ‘adjusted EBITDA’ is further adjusted

to remove the proportion of adjusted EBITDA from equity-accounted joint ventures relating to off-balance sheet debt (see note 5.1(v)).

221SSE plc Annual Report 2022

The Group’s key performance measure is adjusted earnings per share (EPS), which is based on basic earnings per share before

exceptional items and certain re-measurements (see note 3.2 below), depreciation on fair value uplifts, adjustments to the retained Gas

Production decommissioning provision, non-recurring financing costs in joint ventures, the net interest costs associated with defined

benefit schemes and after the removal of deferred taxation and other taxation items. Deferred taxation is excluded from the Group’s

adjusted EPS because of the Group’s significant ongoing capital investment programme, which means that the deferred tax is unlikely to

reverse. Adjusted profit after tax is presented on a basis consistent with adjusted EPS except for the non-inclusion of payments to holders

of hybrid equity.

The financial statements also include an ‘adjusted net debt and hybrid equity’ measure. This presents financing information on the basis

used for internal liquidity risk management. This measure excludes obligations due under lease arrangements and the share of net debt

attributable to non-controlling interests, and includes cash held as collateral on commodity trading exchanges, cash presented as held

for sale and other short term loans. The measure represents the capital owed to investors, lenders and equity holders other than the

ordinary shareholders. As with ‘adjusted earnings per share’, this measure is considered to be of relevance to the ordinary shareholders

of the Group as well as other stakeholders and interested parties.

Finally, the financial statements include an ’adjusted investment and capital expenditure’ and an ‘adjusted investment, capital and

acquisition expenditure’ measure. These metrics represent the capital invested by the Group in projects that are anticipated to provide

a return on investment over future years or which otherwise support Group operations and is consistent with internally applied metrics.

They therefore include capital additions to property, plant and equipment and intangible assets and also the Group’s direct funding of joint

venture and associates capital projects. The Group has considered it appropriate to report these values both internally and externally in

this manner due to its use of equity-accounted investment vehicles to grow the Group’s asset base, where the Group is providing a source

of funding to the vehicle through either loans or equity. The Group does not include project funded capital additions in these metrics, nor

does it include other capital invested in joint ventures and associates. Where initial capital funding of an equity accounted joint venture is

refunded, these refunds are deducted from the metrics in the year the refund is received. In addition, the Group excludes from this metric

additions to its property, plant and equipment funded by Customer Contributions and additions to intangible assets associated with

Allowances and Certificates. The Group also excludes the share of investment and capital expenditure attributable to non-controlling

interests. The ‘adjusted investment, capital and acquisition expenditure’ measure also includes cash consideration paid by the Group in

business combinations which contribute to growth of the Group’s capital asset base and is considered to be relevant metric in context of

the Group’s Net Zero Acceleration Programme. As with ‘adjusted earnings per share’, these measures are considered to be of relevance to

the ordinary shareholders of the Group as well as other stakeholders and interested parties.

Reconciliations from reported measures to adjusted measures along with further description of the rationale for those adjustments are

included in the “Adjusted Performance Measures” section at pages 204 to 212 .

APM

Where the Group have referred to an adjusted performance measure in the financial statements the following sign is presented to

denote this.

3.2 Exceptional items and certain re-measurements

Exceptional items are those charges or credits that are considered unusual by nature and/or scale and of such significance that separate

disclosure is required for the financial statements to be properly understood. The trigger points for recognition of items as exceptional

items will tend to be non-recurring although exceptional charges (or credits) may impact the same asset class or segment over time.

Market conditions that have deteriorated or improved significantly over time will only be captured to the extent observable at the balance

sheet date. Examples of items that may be considered exceptional include material asset or business impairment charges, reversals of

historic impairments, business restructuring costs and reorganisation costs, significant realised gains or losses on disposal, unrealised

fair value adjustments on part disposal of a subsidiary and provisions in relation to contractual settlements associated with or material

significant disputes and claims.

The Group operates a policy framework for estimating whether items are considered to be exceptional. This framework, which is reviewed

annually, estimates the materiality of each broad set of potentially exceptional circumstances, after consideration of strategic impact and

likelihood of recurrence, by reference to the Group’s key performance measure of adjusted earnings per share. This framework estimates that

any relevant item greater than £30.0m will be considered exceptional, with lower thresholds applied to circumstances that are considered to

have a greater strategic impact and are less likely to recur. The only exception to this threshold is for gains or losses on disposal or divestment

of early stage international or offshore wind farm development projects which are considered non-exceptional in line with the Group’s

strategy to generate recurring gains from developer divestments.

Certain re-measurements are re-measurements arising on certain commodity, interest rate and currency contracts which are accounted

for as held for trading or as fair value hedges in accordance with the Group’s policy for such financial instruments, or remeasurements on

stocks of commodities held at the balance sheet date. The amount shown in the before exceptional items and certain re-measurements

results for these contracts is the amount settled in the year as disclosed in note 24.1.

This excludes commodity contracts not treated as financial instruments under IFRS 9 where held for the Group’s own use requirements

which are not recorded until the underlying commodity is delivered.

The impact of changes in Corporation Tax rates on deferred tax balances are also included within certain remeasurements.

222 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

3. Adjusted accounting measures continued

3.3 Other additional disclosures

As permitted by IAS 1 ‘Presentation of financial statements’, the Group’s income statement discloses additional information in respect of

joint ventures and associates, exceptional items and certain re-measurements to aid understanding of the Group’s financial performance

and to present results clearly and consistently.

4. Accounting judgements and estimation uncertainty

In the process of applying the Group’s accounting policies, management are required to make judgements and estimates that have a

significant effect on the amounts recognised in the financial statements. Changes in the assumptions underlying the estimates could

result in a significant impact to the financial statements. The Group’s key accounting judgement and estimation areas are noted below,

with the most significant financial judgement areas as specifically considered by the Audit Committee being highlighted separately.

4.1 Significant financial judgements and estimation uncertainties

The preparation of these financial statements has specifically considered the following significant financial judgements, some of which

are also areas of estimation uncertainty as noted below.

(i) Impairment testing and valuation of certain non-current assets – financial judgement and estimation uncertainty

The Group reviews the carrying amounts of its goodwill, other intangible assets, specific property, plant and equipment and investment

assets to determine whether any impairment of the carrying value of those assets requires to be recorded. Where an indicator of

impairment or impairment reversal exists, the recoverable amount of those assets is determined by reference to value in use calculations

or fair value less cost to sell assessments, if more appropriate. The specific assets under review in the year ended 31 March 2022 are

intangible development assets and specific property, plant and equipment assets related to gas storage and thermal power generation.

In addition, the Group performed an impairment review over the carrying value of its investment in Neos Networks Limited.

In conducting its reviews, the Group makes judgements and estimates in considering both the level of cash generating unit (CGU) at which

common assets such as goodwill are assessed against, as well as the estimates and assumptions behind the calculation of recoverable

amount of the respective assets or CGUs.

Changes to the estimates and assumptions on factors such as regulation and legislation changes (including climate change related

regulation), power, gas, carbon and other commodity prices, volatility of gas prices, plant running regimes and load factors, discount

rates and other inputs could impact the assessed recoverable value of assets and CGUs and consequently impact the Group’s income

statement and balance sheet.

Further detail of the calculation basis and key assumptions used in the impairment review, the resulting impairment reversals and the

sensitivity of this assessment to key assumptions is disclosed at note 15. Detail on the accounting policies applied is included in the

Accompanying Information section A1.

(ii) Retirement benefit obligations – estimation uncertainty

The assumptions in relation to the cost of providing post-retirement benefits during the year are based on the Group’s best estimates

and are set after consultation with qualified actuaries. While these assumptions are believed to be appropriate, a change in these

assumptions would impact the level of the retirement benefit obligation recorded and the cost to the Group of administering the schemes.

Further detail of the calculation basis and key assumptions used, the resulting movements in obligations, and the sensitivity of key

assumptions to the obligation is disclosed at note 23.

(iii) Revenue recognition – Customers unbilled supply of energy– estimation uncertainty

Revenue from energy supply activities undertaken by the Business Energy and Airtricity businesses includes an estimate of the value of

electricity or gas supplied to customers between the date of the last meter reading and the year end. This estimation comprises both

billed revenue and unbilled revenue and is calculated based on applying the tariffs and contract rates applicable to customers against

estimated customer consumption, taking account of various factors including usage patterns, weather trends and externally notified

aggregated volumes supplied to customers from national settlements bodies. A change in the assumptions underpinning the calculation

would have an impact on the amount of revenue recognised in any given period. The sensitivity associated with this judgement factor is

disclosed at note 18.

This estimation is subject to an internal corroboration process which compares of calculated unbilled volumes to a theoretical ‘perfect

billing’ benchmark measure of unbilled volumes (in GWh and millions of therms) derived from historical weather-adjusted consumption

patterns and aggregated metering data used in industry reconciliation processes. Furthermore, actual meter readings and billings

continue to be compared to unbilled estimates between the balance sheet date and the finalisation of the financial statements.

Given the non-routine process, the number and the extent of differing inputs and the requirement of management to apply judgement

noted above, the estimated revenue is considered a significant estimate made by management in preparing the financial statements.

223SSE plc Annual Report 2022

(iv) Valuation of other receivables – financial judgement and estimation uncertainty

The Group holds a £100m loan note due from Ovo Energy Limited following the disposal of SSE Energy Services on 15 January 2020.

The loan carries interest at 13.25% and is presented cumulative of accrued interest payments, discounted at 13.25%. At 31 March 2022,

the carrying value (net of expected credit loss provision of £1.8m) is £131.0m.

Consistent with the prior year, the Group has assessed recoverability of the loan note receivable and has recognised a provision for

expected credit loss in accordance with the requirements of IFRS 9. Due to recent market volatility, the Group’s assessment of the value

of the loan note is now considered a more significant financial judgement. While the carrying value is considered to be appropriate,

changes in economic conditions could lead to a change in the level of expected credit loss incurred by the Group.

(v) Impact of climate change and the transition to net zero – financial judgement and estimation uncertainty

Climate change and the transition to net zero have been considered in the preparation of these financial statements. The Group has a

clearly articulated Net Zero Acceleration Programme (‘NZAP’) set out on pages 4 to 5  to lead in the UK’s transition to net zero and

aligns its investment plans and business activities to that strategy. The impact of future climate change regulation could have a material

impact on the currently reported amounts of the Group’s assets and liabilities.

In preparing these financial statements, the following has been considered:

Valuation of property, plant and equipment, and impairment assessment of goodwill

In the medium term, the transition to net zero may result in regulation restricting electricity generation from unabated gas fired power

stations. The Group’s view is that flexible generation capacity, such as the Group’s fleet of CCGT power stations, will be an essential part

of the net zero transition in order to provide security of supply to a market which is increasingly dependent upon renewable sources,

which are inherently intermittent. The majority of the Group’s GB CCGT fleet is nearing the end of its economic life and it is not currently

expected that regulation to require abatement would be introduced before the planned closure of those power stations. Of the value

capitalised at 31 March 2022, only two assets are forecast to continue to operate beyond 2030, being Great Island and Keadby 2. The

Group’s view is that Great Island will continue to be essential to providing security of supply in the Irish electricity market. Keadby 2 is

nearing completion and has achieved market leading efficiency throughout test operations. Therefore, the Group considers that other

assets operating in the market would be more likely to close before Keadby 2 and the plant will continue to be required to balance the

UK electricity market beyond 2030. As a result, the useful economic life of both assets has not been shortened when preparing the

31 March 2022 financial statements. The Group assesses the useful economic life of its Property, Plant and Equipment assets annually.

In the short term, the economic return from the balancing activity provided by the Group’s GB CCGT assets has increased due to scarcity

of supply in the UK electricity market, resulting in the reversal of historic impairments at 31 March 2022. See note 15.2.

A significant increase in renewable generation capacity in the Group’s core markets could potentially 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

wind generation assets. The Group has not assessed that this constitutes an indicator of impairment at 31 March 2022 as the Group’s

baseline investment case models assume a centrally approved volume of new build in these markets. The Group’s policy is to test the

goodwill balances associated with wind generation portfolio for impairment on an annual basis. Through this impairment assessment

(see note 15.1), a sensitivity to power price, which may arise in a market with significant new build, was modelled. This scenario indicated

that, despite a modelled 10% reduction in power price, there remained significant headroom on the carrying value in the Group’s wind

generation assets.

Another climate related risk to SSE’s valuation bases could be changes to weather patterns resulting from global warming. This in turn

could result in calmer, drier weather patterns, which would reduce volumes achievable for the Group’s wind and hydro generation assets

(although noting that this would likely lead to capacity constraints and hence higher prices). This has not been assessed as an indicator

of impairment at 31 March 2022, as there is no currently observable evidence to support that scenario directly. However, the Group has

performed a sensitivity to its impairment modelling and has assessed that a 15% reduction in achievable volume would result in significant

headroom on the carrying value of the assets at 31 March 2022 (see note 15.1).

Valuations of decommissioning provisions

The Group holds decommissioning provisions for its Renewable and Thermal generation assets and has retained a 60% share for the

decommissioning of its disposed Gas Production business. As noted above, the Group’s view at 31 March 2022 is that climate change

regulation will not bring forward the closure dates of its CCGT fleet, many of which are expected to close before 2030. Similarly, it is

expected that fundamental changes to weather patterns, or the impact of new wind generation capacity will not bring forward the

decommissioning of the Group’s current wind farm portfolio.

The discounted share of the Gas Production provision is £249.4m. At 31 March 2022, the impact of discounting of this retained provision

is £33.8m, which is expected to be incurred across the period to 31 March 2037. If the decommissioning activity was accelerated due to

changes in legislation, the costs of unwinding the discounting of the provision would be recognised earlier.

224 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

4. Accounting judgements and estimation uncertainty continued

4.2 Other accounting judgements – changes from prior year

(i) Accounting for the impacts of coronavirus – accounting judgement and estimation uncertainty

For the years ended 31 March 2020 and 31 March 2021, the Group included a specific accounting judgement and estimation uncertainty

in relation to the impact of coronavirus on its operations and going concern assessments. During the current year, the UK economy has

continued to recover from the effects of the pandemic, and therefore the specific accounting judgement and estimation uncertainty in

relation to the impact of coronavirus is no longer required.

4.3 Other areas of estimation uncertainty

(i) Tax provisioning

The Group has open tax issues with the tax authorities in the UK. Where management makes a judgement that an outflow of funds is

probable, and a reliable estimate of the dispute can be made, provision is made for the best estimate of the most likely liability.

In estimating any such liability, the Group applies a risk-based approach, taking into account the specific circumstances of each dispute

based on management’s interpretation of tax law and supported, where appropriate, by discussion and analysis by external tax advisors.

These estimates are inherently judgemental and could change substantially over time as disputes progress and new facts emerge.

Provisions are reviewed on an ongoing basis, however the resolution of tax issues can take a considerable period of time to conclude and

it is possible that amounts ultimately paid will be different from the amounts provided. Provisions for uncertain tax positions are included

in current tax liabilities, and total £27.9m at 31 March 2022 (2021: £37.6m). The Group estimates that a reasonably possible range of

settlement outcomes for the uncertain tax provisions given their binary nature is between nil and the full value of the provision.

(ii) Decommissioning costs

The calculation of the Group’s decommissioning provisions involves the estimation of quantum and timing of cash flows to settle the

obligation. The Group engages independent valuation experts to estimate the cost of decommissioning its Renewable, Thermal and Gas

Storage assets every three years based on current technology and prices. The last independent assessment for Renewable and Thermal

generation assets was performed in the year to 31 March 2022. The last formal assessment for Gas Storage assets was performed in the

year to 31 March 2020. Retained decommissioning costs in relation to the disposed Gas Production business are periodically agreed with

the field operators and reflect the latest expected economic production lives of the fields.

The dates for settlement of future decommissioning costs are uncertain, particularly for the disposed gas exploration and production

business where reassessment of gas and liquids reserves and fluctuations in commodity prices can lengthen or shorten the field life.

Further detail on the assumptions applied, including expected decommissioning dates, and movement in decommissioning costs during

the year are disclosed at note 20.

5. Segmental information

The changes to the Group’s segments in the year are explained at note 1.2 and includes the realignment of the activities of the

Distributed Energy business (from the Enterprise segment) and the impact of the Group’s investment in SGN being classified as a

discontinued operation prior to disposal on 22 March 2022. Comparative information has been represented to reflect the change to

these segments. The Group’s Gas Production business was disposed on 14 October 2021 and is presented separately as a discontinued

operation. The Group’s ‘Corporate unallocated’ segment is the Group’s residual corporate central costs which cannot be allocated to

individual segments and which now includes the contribution from the Group’s Neos Networks joint venture.

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.

Distribution SSEN

Distribution

The economically regulated lower voltage distribution of electricity to customer premises in the

North of Scotland and the South of England. This now includes the result from the Group’s out

of area networks business. Revenue earned from delivery of electricity supply to customers is

recognised based on the volume of electricity distributed to those customers and the set customer

tariff. The revenue earned from other distribution services such as domestic customer connections

is recognised in line with delivery of that service over the expected contractual period and at the

contracted rate.

225SSE plc Annual Report 2022

Business area Reported segments Description

Continuing operations

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. Revenue from physical

generation of electricity sold to SSE EPM is recognised as generated, based on the contracted or

spot price at the time of delivery. Revenue from national support schemes (such as Renewable

Obligation Certificates or the Capacity Market) may either be recognised in line with electricity

being physically generated or over the contractual period, depending on the underlying

performance obligation.

Thermal SSE

Thermal

The generation of electricity from thermal plant and the Group’s interests in multifuel assets in

the UK and Ireland. Revenue from physical generation of electricity sold to SSE EPM is recognised

as generated, based on the contract or spot price at the time of delivery. Revenue from national

support schemes (such as the Capacity Market) and ancillary generation services may either be

recognised in line with electricity being physically generated or over the contractual period,

depending on the underlying performance obligation.

Gas

Storage

The operation of gas storage facilities in the UK, utilising capacity to optimise trading opportunity

associated with the assets. Contribution arising from trading activities is recognised as realised

based on the executed trades or withdrawal of gas from caverns.

Energy

Customer

Solutions

Business

Energy

The supply of electricity 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.

EPM & I Energy

Portfolio

Management

(EPM)

The provision of a route to market for the Group’s Renewable, Thermal and commodity

procurement for the Group’s energy supply businesses in line with the Group’s 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.

Discontinued operations

EPM & I Gas

Production

The production and processing of gas and oil from North Sea fields. Revenue is recognised based

on the production that has been delivered to the customer at the specified delivery point, at the

applicable contractual market price.

Gas

Distribution

SGN SSE’s share of Scotia Gas Networks, which operates two economically regulated gas distribution

networks in Scotland and the South of England. The revenue earned from transportation of

natural gas to customers is recognised based on the volume of gas distributed to those customers

and the set customer tariff.

As referred to in note 3, the internal measure of profit used by the Board is ‘adjusted profit before interest and tax’ or ‘adjusted operating

profit’ which is arrived at before exceptional items, the impact of financial instruments measured under IFRS 9, the net interest costs

associated with defined benefit pension schemes, adjustments to the retained Gas Production decommissioning and after the removal

of taxation and interest on profits from joint ventures and associates.

Analysis of revenue, operating profit, assets and earnings before interest, taxation, depreciation and amortisation (‘EBITDA’) by segment is

provided on the following pages. All revenue and profit before taxation arise from operations within the UK and Ireland.

226 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

5. Segmental information continued

5.1 Segmental information disclosure

(i) Revenue by segment

Reported

revenue

2022

£m

Inter-segment

revenue (i)

2022

£m

Segment

revenue

2022

£m

Reported

revenue

(restated*)

2021

£m

Inter-segment

revenue (i)

2021

£m

Segment

revenue

(restated*)

2021

£m

Continuing operations

SSEN Transmission 589.7 – 589.7 404.9 – 404.9

SSEN Distribution 954.6 78.6 1,033.2 834.5 69.1 903.6

SSE Renewables 357.4 418.8 776.2 281.9 544.2 826.1

SSE Thermal 844.2 285.0 1,129.2 504.0 699.0 1,203.0

Gas storage 8.7 2,471.1 2,479.8 7.1 766.0 773.1

Energy Customer Solutions

Business Energy 2,289.0 34.5 2,323.5 1,934.5 30.5 1,965.0

SSE Airtricity 1,177.3 451.3 1,628.6 1,072.7 61.5 1,134.2

Distributed Energy 176.9 25.4 202.3 334.5 33.6 368.1

EPM:

Gross trading 12,808.3 7,160.2 19,968.5 8,811.9 2,699.3 11,511.2

Optimisation trades (10,667.6) (2,914.0) (13,581.6) (7,449.2) (155.8) (7,605.0)

EPM 2,140.7 4,246.2 6,386.9 1,362.7 2,543.5 3,906.2

Corporate unallocated 69.7 147.7 217.4 89.6 189.4 279.0

Total continuing operations 8,608.2 8,158.6 16,766.8 6,826.4 4,936.8 11,763.2

Discontinued operations

Gas Production 8.1 133.9 142.0 14.2 90.8 105.0

Total discontinued operations 8.1 133.9 142.0 14.2 90.8 105.0

Total SSE Group 8,616.3 8,292.5 16,908.8 6,840.6 5,027.6 11,868.2

(i) Significant inter-segment revenue is derived from the sale of power and stored gas from SSE Renewables, SSE Thermal, Gas Storage and Distributed Energy to

EPM; use of system income received by SSEN Distribution from Business Energy; Business Energy provides internal heat and light power supplies to other Group

companies; EPM provides power, gas and other commodities to Business Energy and SSE Airtricity; Gas Production (discontinued) sells gas from producing

upstream fields to EPM; and Corporate unallocated provides corporate and infrastructure services to all segments as well as third parties. All are provided at

arm’s length.

Revenue from the Group’s joint venture investment in Scotia Gas Networks Limited, SSE’s share being £60.4m for the period to 11 June

2021 (2021: £411.8m), is not recorded in the revenue line in the income statement.

* The comparative segment revenue has been restated. See note 1.2.

227SSE plc Annual Report 2022

Disaggregation of revenue

Revenue from contracts with customers can be disaggregated by reported segment, by major service lines and by timing of revenue

recognition as follows:

Revenue from contracts with customers

Goods or services transferred over time Goods or services transferred at a point in time

Total

revenue

from

contracts

with

customers

2022

£m

Other

contract

revenue

2022

£m

Total

2022

£m

Use of

electricity

networks

2022

£m

Supply of

energy and

ancillary

services

2022

£m

Construction

services

2022

£m

Other

contracted

services

2022

£m

Physical

energy

2022

£m

Gas

storage

2022

£m

Other

revenue

2022

£m

Continuing operations

SSEN Transmission 570.8 – – 16.5 – – 2.4 589.7 – 589.7

SSEN Distribution 903.3 – – 10.5 – – 22.8 936.6 18.0 954.6

SSE Renewables – 79.7 – 75.0 202.7 – – 357.4 – 357.4

SSE Thermal – 840.1 – – – – 4.1 844.2 – 844.2

Gas Storage – – – – – 8.7 – 8.7 – 8.7

Energy Customer

Solutions

Business Energy – 2,289.0 – – – – – 2,289.0 – 2,289.0

SSE Airtricity – 1,158.1 – 19.2 – – – 1 ,177.3 – 1,177.3

Distributed Energy 11.9 15.8 77.7 3.9 2.9 – 59.3 171.5 5.4 176.9

EPM – – – – 1,920.9 – 219.8 2,140.7 – 2,140.7

Corporate unallocated – – – – – – 69.7 69.7 – 69.7

Total continuing

operations 1,486.0 4,382.7 77.7 125.1 2,126.5 8.7 378.1 8,584.8 23.4 8,608.2

Discontinued

operations

Gas Production – – – – – – 8.1 8.1 – 8.1

Total discontinued

operations – – – – – – 8.1 8.1 – 8.1

Total SSE Group 1,486.0 4,382.7 77.7 125.1 2,126.5 8.7 386.2 8,592.9 23.4 8,616.3

228 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

5. Segmental information continued

5.1 Segmental information disclosure continued

(Restated*)

Revenue from contracts with customers

Goods or services transferred over time

Goods or services transferred at a

point in time

Total

revenue

from

contracts

with

customers

2021

£m

Other

contract

revenue

2021

£m

Total

2021

£m

Use of

electricity

networks

2021

£m

Supply of

energy and

ancillary

services

2021

£m

Construction

services

2021

£m

Other

contracted

services

2021

£m

Physical

energy

2021

£m

Gas

storage

2021

£m

Other

revenue

2021

£m

Continuing operations

SSEN Transmission 373.8 – – 26.4 – – 4.7 404.9 – 404.9

SSEN Distribution 787.1 – – 9.1 – – 16.2 812.4 22.1 834.5

SSE Renewables (i) – 117.7 – 42.2 122.0 – – 281.9 – 281.9

SSE Thermal – 484.3 – – – – 19.7 504.0 – 504.0

Gas Storage – – – – – 7.1 – 7.1 – 7.1

Energy Customer

Solutions

Business Energy – 1,934.5 – – – – – 1,934.5 – 1,934.5

SSE Airtricity – 1,055.2 – 17.5 – – – 1,072.7 – 1,072.7

Distributed Energy 12.8 15.4 265.4 33.3 1.2 – 0.5 328.6 5.9 334.5

EPM – – – – 988.9 – 373.8 1,362.7 – 1,362.7

Corporate

unallocated – – – – – – 89.6 89.6 – 89.6

Total continuing

operations 1,173.7 3,607.1 265.4 128.5 1,112.1 7.1 504.5 6,798.4 28.0 6,826.4

Discontinued

operations

Gas Production – – – – – – 14.2 14.2 – 14.2

Total discontinued

operations – – – – – – 14.2 14.2 – 14.2

Total SSE Group 1,173.7 3,607.1 265.4 128.5 1,112.1 7.1 518.7 6,812.6 28.0 6,840.6

* The comparative disaggregated segment revenue has been restated. See note 1.2.

(i) For the SSE Renewables £42.2m of revenue for the year ended 31 March 2021 has been reallocated from Supply of energy and ancillary services to Other

contracted services.

Included within trade and other receivables (note 18) is £492.7m (2021: £325.0m) of unbilled energy income and £nil (2021: £12.8m) of

contract related assets. Included within trade and other payables (note 19) is £242.5m (2021: £240.6m) of contract related liabilities.

Contract related assets reflect the Group’s right to consideration in exchange for goods or services that have transferred to the customer,

and contract related liabilities reflect the Group’s obligation to transfer future goods or services for which the Group has already received

consideration. Contract related assets and liabilities principally arose in the Distributed Energy reporting segment with changes during

the periods reflecting ongoing contract progress, offset by cash receipts or customer invoicing.

The Group has not disclosed information related to the transaction price allocated to remaining performance obligations on the basis that

the Group’s contracts either have an original expected duration of less than one year, or permit the Group to recognise revenue as invoiced.

Revenue by geographical location on continuing operations is as follows:

2022

£m

2021

£m

UK 7,292 .1 5,834.4

Ireland 1,316.1 992.0

8,608.2 6,826.4

229SSE plc Annual Report 2022

(ii) Operating profit/(loss) by segment

2022

Adjusted

operating profit

reported to the

Board

APM

£m

Depreciation

on fair value

uplifts

£m

JV/Associate

share of interest

and tax

£m

Adjustments to

Gas Production

decommissioning

provision

£m

Before

exceptional

items and

certain

re-

measurements

£m

Exceptional

items and

certain

re-

measurements

£m

Total

£m

Continuing operations

SSEN Transmission 380.5 – – – 380.5 – 380.5

SSEN Distribution 351.8 – – – 351.8 – 351.8

SSE Renewables 568.1 (18.8) (92.9) – 456.4 (28.6) 427.8

SSE Thermal 306.3 – (9.5) – 296.8 333.3 630.1

Gas Storage 30.7 – – – 30.7 94.7 125.4

Energy Customer

Solutions

Business Energy (21.5) – – – (21.5) – (21.5)

SSE Airtricity 60.4 – – – 60.4 – 60.4

Distributed Energy (10.9) – – – (10.9) (18.3) (29.2)

EPM (16.8) – – – (16.8) 2,100.4 2,083.6

Corporate

Corporate unallocated (95.7) – (4.7) (13.1) (113.5) – (113.5)

Neos (16.1) (1.8) (7.0) – (24.9) (115.1) (140.0)

Total continuing

operations 1,536.8 (20.6) (114.1) (13.1) 1,389.0 2,366.4 3,755.4

Discontinued operations

Gas Production 101.4 – – – 101.4 (120.8) (19.4)

SGN 21.0 – (12.8) – 8.2 487.2 495.4

Total discontinued

operations 122.4 – (12.8) – 109.6 366.4 476.0

Total SSE Group 1,659.2 (20.6) (126.9) (13.1) 1,498.6 2,732.8 4,231.4

(i) The adjusted operating profit reported to the Board for SSE Airtricity includes a correction in respect of historic use of systems costs of £25.0m. It has been

assessed that adjustment in the current year does not materially impact prior year financial statements.

The adjusted operating profit of the Group is reported after removal of the Group’s share of interest, fair value movements on financing

derivatives, Gas Production decommissioning costs, the depreciation charged on fair value uplifts and tax from joint ventures and

associates and after adjusting for exceptional items and certain re-measurements (note 7). The share of SGN interest includes loan stock

interest payable to the consortium shareholders (included in SGN). The Group has accounted for its 33% share of this, £6.8m (2021:

£9.8m), as discontinued finance income (note 9).

The Group’s share of operating profit from joint ventures and associates has been recognised in the SSE Renewables, SSE Thermal,

Distributed Energy and SGN segments.

230 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

5. Segmental information continued

5.1 Segmental information disclosure continued

(ii) Operating profit/(loss) by segment

2021

(restated*)

Adjusted

operating profit

reported to the

Board

APM

£m

Depreciation on

fair value

uplifts

£m

JV/Associate

share of interest

and tax

£m

Adjustments to

Gas Production

decommissioning

provision

£m

Before

exceptional

items and

certain

re-

measurements

£m

Exceptional

items and

certain

re-

measurements

£m

Total

£m

Continuing operations

SSEN Transmission 220.9 – – – 220.9 – 220.9

SSEN Distribution 275.8 – – – 275.8 – 275.8

SSE Renewables 731.8 (18.8) (71.4) – 641.6 214.4 856.0

SSE Thermal 160.5 – (19.6) – 140.9 634.4 775.3

Gas Storage (5.7) – – – (5.7) 8.5 2.8

Energy Customer Solutions

Business Energy (24.0) – – – (24.0) 20.1 (3.9)

SSE Airtricity 44.0 – – – 44.0 6.0 50.0

Distributed Energy (27.0) – – – (27.0) (49.1) (76.1)

EPM 18.4 – – – 18.4 590.1 608.5

Corporate

Corporate unallocated (58.4) (1.8) (2.4) – (62.6) 22.3 (40.3)

Neos (2.8) – (11.3) – (14.1) – (14.1)

Total continuing operations 1,333.5 (20.6) (104.7) – 1,208.2 1,446.7 2,654.9

Discontinued operations

Gas Production 33.0 – – – 33.0 – 33.0

SGN 173.0 – (86.0) – 87.0 1.6 88.6

Total discontinued

operations 206.0 – (86.0) – 120.0 1.6 121.6

Total SSE Group 1,539.5 (20.6) (190.7) – 1,328.2 1,448.3 2,776.5

* The comparative operating profit by segment information has been restated. See note 1.2.

231SSE plc Annual Report 2022

(iii) Capital expenditure by segment

Capital

additions to

intangible assets

2022

£m

Capital

additions to

property, plant

and equipment

2022

£m

Capital additions

to intangible

assets

2021

£m

Capital additions

to property,

plant and

equipment

2021

£m

Continuing operations

SSEN Transmission 5.8 608.6 6.3 429.9

SSEN Distribution 15.6 440.5 12.5 400.1

SSE Renewables 265.2 193.2 112.7 111.2

SSE Thermal 9.5 65.1 3.4 76.7

Gas Storage – 2.1 – 1.9

Energy Customer Solutions

Business Energy 4.6 30.6 – 25.6

SSE Airtricity – 4.6 – 5.6

Distributed Energy 8.7 17.9 2.6 21.9

EPM 545.3 1.6 509.0 2.1

Corporate unallocated 65.8 21.2 53.9 1.6

Total continuing operations 920.5 1,385.4 700.4 1,076.6

Discontinued operations

Gas Production – 13.9 0.9 25.9

Total discontinued operations – 13.9 0.9 25.9

Total SSE Group 920.5 1,399.3 701.3 1,102.5

(Decrease)/increase in prepayments related to capital expenditure – (2.0) – 0.5

Decrease/(increase) in trade payables related to capital expenditure – 53.3 – (10.8)

IFRS 15 adjustment – (91.3) – (61.8)

Lease asset additions – (85.7) – (45.4)

Less non-cash items

Allowance and certificates (193.7) – (201.6) –

Assets acquired through acquisitions (197.8) – – –

Net cash outflow 529.0 1,273.6 499.7 985.0

Capital additions do not include assets acquired in acquisitions or assets acquired under leases. Capital additions to intangible assets

includes the cash purchase of emissions allowances and certificates (2022: £350.8m; 2021: £307.4m). Other non-cash additions

comprise self-generated renewable obligation certificates.

No segmental analysis of assets requires to be disclosed as this information is not presented to the Board.

232 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

5. Segmental information continued

5.1 Segmental information disclosure continued

(iii) Capital expenditure by segment

At 31 March 2022

Capital

additions to

intangible

assets

2022

£m

Capital

additions to

property,

plant and

equipment

2022

£m

Capital

Investment

relating to

Joint

Ventures

and

Associates

(i)

Allowances

and

certificate

(ii)

Customer

funded

additions

(iii)

Acquired

through

business

combinations

(iv)

Lease asset

additions

(v)

Additions

subsequently

disposed

(vi)

Refinancing

proceeds

(vii)

Adjusted

Investment

and Capital

Expenditure

2022

APM

£m

Continuing

operations

SSEN

Transmission 5.8 608.6 – – – – – – – 614.4

SSEN

Distribution 15.6 440.5 – – (91.3) – – – – 364.8

SSE Renewables 265.2 193.2 588.8 – – (197.8) (38.4) – (136.7) 674.3

SSE Thermal 9.5 65.1 54.7 – – – – – – 129.3

Gas Storage – 2.1 – – – – – – – 2.1

Energy

Customer

Solutions

Business

Energy 4.6 30.6 – – – – – – – 35.2

SSE Airtricity – 4.6 – – – – – – – 4.6

Distributed

Energy 8.7 17.9 – – – – – – – 26.6

EPM 545.3 1.6 – (544.5) – – – – – 2.4

Corporate

unallocated 65.8 21.2 39.0 – – – (47.3) – – 78.7

Total

continuing

operations 920.5 1,385.4 682.5 (544.5) (91.3) (197.8) (85.7) – (136.7) 1,932.4

Discontinued

operations

Gas Production 0.5 13.4 – – – – – (13.9) – –

Total

discontinued

operations 0.5 13.4 – – – – – (13.9) – –

Total SSE

Group 921.0 1,398.8 682.5 (544.5) (91.3) (197.8) (85.7) (13.9) (136.7) 1,932.4

(i) Represents equity or debt funding provided to joint ventures or associates in relation to capital expenditure projects.

(ii) Allowances and Certificates consist of purchased carbon emissions allowances and generated or purchased renewable obligations certificates (ROCs) and are not

included in the Group’s Capital Expenditure and Investment alternative performance measure.

(iii) Represents removal of additions to electricity and other networks funded by customer contributions.

(iv) Represents removal of additions achieved through business combinations; for Renewables additions of £197.8m refer to note 12. Note that the Group’s Adjusted

Investment, Capital and Acquisitions metric includes the £141.3m cash consideration paid for Business Combinations and totals £2,073.7m.

(v) Represents removal of additions in respect of right of use assets recognised on the commencement date of a lease arrangement.

(vi) On 14 October 2021, the Group disposed of its Gas Production business but retained a 60% share of the decommissioning obligation of the business.

(vii) Represents the refunding of equity or debt funding provided by the Group (predominately to joint ventures); as the funding is included at i) above, when there is a

refinancing and SSE receives a repayment, those proceeds are excluded from its adjusted capex measure. In the year ended 31 March 2022, Doggerbank windfarm

reimbursed SSE for previous funding of £136.7m.

233SSE plc Annual Report 2022

At 31 March 2021

(restated*)

Capital

additions to

intangible

assets

2021

£m

Capital

additions to

property,

plant and

equipment

2021

£m

Capital

Investment

relating to

Joint

Ventures

and

Associates

(i)

Allowances

and

certificates

(ii)

Customer

funded

additions

(iii)

Lease asset

additions

(iv)

Refinancing

proceeds

(v)

Additions

subsequently

disposed

(vi)

Adjusted

Investment

and Capital

Expenditure

2021

APM

£m

Continuing operations

SSEN Transmission 6.3 429.9 – – – (1.0) – – 435.2

SSEN Distribution 12.5 400.1 – – (61.8) – – – 350.8

SSE Renewables 112.7 111.2 97.9 – – (7.8) (428.6) (19.7) (134.3)

SSE Thermal 3.4 76.7 26.4 – – – – – 106.5

Gas Storage – 1.9 – – – – – – 1.9

Energy Customer

Solutions

Business Energy – 25.6 – – – – – – 25.6

SSE Airtricity – 5.6 – – – – – – 5.6

Distributed Energy 2.6 21.9 – – – (6.9) – – 17.6

EPM 509.0 2.1 – (509.0) – – – – 2.1

Corporate unallocated 53.9 1.6 48.4 – – (29.7) – – 74.2

Total continuing

operations 700.4 1,076.6 172.7 (509.0) (61.8) (45.4) (428.6) (19.7) 885.2

Discontinued

operations

Gas Production 0.9 25.9 – – – – – – 26.8

Total discontinued

operations 0.9 25.9 – – – – – – 26.8

Total SSE Group 701.3 1,102.5 172.7 (509.0) (61.8) (45.4) (428.6) (19.7) 912.0

* The comparatives have been restated. See note 1.2.

(i) Represents equity or debt funding provided to joint ventures or associates in relation to capital expenditure projects.

(ii) Allowances and Certificates consist of purchased carbon emissions allowances and generated or purchased renewable obligations certificates (ROCs) and are not

included in the Group’s Capital Expenditure and Investment alternative performance measure.

(iii) Represents removal of additions to electricity and other networks funded by customer contributions.

(iv) Represents removal of right of use assets recognised on the commencement date of a lease arrangement.

(v) Represents the refunding of equity or debt funding provided by the Group (predominately to joint ventures); as the funding is included at i) above, when there is a

refinancing and SSE receives a repayment, those proceeds are excluded from its adjusted capex measure. In the year to 31 March 2021, the Group received

reimbursed capex of £246.1m in relation to Seagreen windfarm (prior to disposal of a stake in the venture) and £182.5m in relation to Doggerbank windfarm.

(vi) In the year the Group funded £19.7m of capex additions in relation to the Seagreen windfarm prior to disposal. On 3 June 2020, the Group disposed of a 51% stake

in Seagreen 1 (note 12), therefore the capex incurred prior to that date has been excluded from the Group’s net adjusted investment and capital expenditure metric.

234 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

5. Segmental information continued

5.1 Segmental information disclosure continued

(iv) Items included in operating profit/(loss) by segment

Depreciation/impairment on property,

plant and equipment

Amortisation/impairment

of intangible assets

Before

exceptional

charges

2022

£m

Impairment

charges/

(credits)

2022

£m

Total

2022

£m

Before

exceptional

charges

2022

£m

Impairment

charges/

(credits)

2022

£m

Total

2022

£m

Continuing operations

SSEN Transmission 99.6 – 99.6 3.6 – 3.6

SSEN Distribution 165.8 20.7 186.5 9.4 – 9.4

SSE Renewables 160.1 – 160.1 0.8 – 0.8

SSE Thermal 69.8 (331.6) (261.8) 0.4 – 0.4

Gas Storage 0.8 (97.3) (96.5) – – –

Energy Customer Solutions

Business Energy 5.1 – 5.1 6.2 – 6.2

SSE Airtricity 0.2 – 0.2 1.5 – 1.5

Distributed Energy 5.6 (1.6) 4.0 2.3 0.5 2.8

EPM – – – 4.5 – 4.5

Corporate unallocated 38.4 – 38.4 16.7 1.0 17.7

Total continuing operations 545.4 (409.8) 135.6 45.4 1.5 46.9

Discontinued operations

Gas Production – 120.8 120.8 – – –

Total discontinued operations – 120.8 120.8 – – –

Total SSE Group 545.4 (289.0) 256.4 45.4 1.5 46.9

235SSE plc Annual Report 2022

(restated*)

Depreciation/impairment on property,

plant and equipment

Amortisation/impairment

of intangible assets

Before

exceptional

charges

2021

£m

Impairment

charges

2021

£m

Total

2021

£m

Before

exceptional

charges

2021

£m

Impairment

charges

2021

£m

Total

2021

£m

Continuing operations

SSEN Transmission 85.1 – 85.1 2.0 – 2.0

SSEN Distribution 159.9 – 159.9 8.9 – 8.9

SSE Renewables 157.7 0.5 158.2 0.5 4.7 5.2

SSE Thermal 54.3 58.1 112.4 – – –

Gas Storage 0.8 – 0.8 – – –

Energy Customer Solutions

Business Energy 4.6 – 4.6 0.5 – 0.5

SSE Airtricity 6.0 – 6.0 1.5 – 1.5

Distributed Energy 6.6 (1.9) 4.7 2.1 – 2.1

EPM 0.3 – 0.3 3.9 – 3.9

Corporate unallocated 48.0 15.1 63.1 13.5 5.2 18.7

Total continuing operations 523.3 71.8 595.1 32.9 9.9 42.8

Discontinued operations

Gas Production – – – – – –

Total discontinued operations – – – – – –

Total SSE Group 523.3 71.8 595.1 32.9 9.9 42.8

* The comparatives have been restated. See note 1.2.

The Group’s share of SGN depreciation (2022: £10.4m; 2021: £57.4m) and amortisation (2022: £0.7m; 2021: £4.2m) is not included within

operating costs.

236 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

5. Segmental information continued

5.1 Segmental information disclosure continued

(v) Earnings before interest, taxation, depreciation and amortisation (‘EBITDA’)

Adjusted

operating profit

reported to

the Board

(note 5.1(ii))

APM

2022

£m

Depreciation

on fair

value uplifts

2022

£m

Depreciation/

Impairment/

amortisation

before

exceptional

charges

(note 5.1(iv))

2022

£m

JV/Associate

share of

depreciation

and

amortisation

(note 16.4)

2022

£m

Release of

deferred

income

(note 6)

2022

£m

Adjusted

EBITDA

APM

2022

£m

Continuing operations

SSEN Transmission 380.5 – 103.2 – (3.8) 479.9

SSEN Distribution 351.8 – 195.9 – (11.6) 536.1

SSE Renewables 568.1 (18.8) 160.9 85.4 – 795.6

SSE Thermal 306.3 – 70.2 19.0 – 395.5

Gas Storage 30.7 – 0.8 – – 31.5

Energy Customer Solutions

Business Energy (21.5) – 11.3 – – (10.2)

SSE Airtricity 60.4 – 1.7 – – 62.1

Distributed Energy (10.9) – 7.4 – (1.3) (4.8)

EPM (16.8) – 4.5 – – (12.3)

Corporate

Corporate unallocated (95.7) – 56.1 – (0.9) (40.5)

Neos (16.1) (1.8) – 42.2 – 24.3

Total continuing operations 1,536.8 (20.6) 612.0 146.6 (17.6) 2,257.2

Discontinued operations

Gas Production 101.4 – – – – 101.4

SGN 21.0 – – 11.1 – 32.1

Total discontinued operations 122.4 – – 11.1 – 133.5

Total SSE Group 1,659.2 (20.6) 612.0 157.7 (17.6) 2,390.7

Note that the Group’s ‘Net Debt to EBITDA’ metric is derived after removing the proportionate EBITDA from the following debt-financed

JVs: Beatrice and Cloosh. This adjustment is £125.4m (2021: £110.5m) (restated) resulting in EBITDA on continuing operations for inclusion

in the Debt to EBITDA metric of £2,131.2m (2021: £1,884.8m restated).

The £612.0m combined depreciation, impairment and amortisation charges included non-exceptional impairments totalling £21.2m.

237SSE plc Annual Report 2022

Adjusted

operating profit

reported to

the Board

(note 5.1 (ii))

APM

2021

£m

Depreciation

on fair

value uplifts

2021

£m

(restated*)

Depreciation/

impairment/

amortisation

before

exceptional

charges

(note 5.1 (iv))

2021

£m

JV/Associate

share of

depreciation

and

amortisation

(note 16.4)

2021

£m

Release of

deferred

income

(note 6)

2021

£m

Adjusted

EBITDA

APM

2021

£m

Continuing operations

SSEN Transmission 220.9 – 87.1 – (2.6) 305.4

SSEN Distribution 275.8 – 168.8 – (11.3) 433.3

SSE Renewables 731.8 (18.8) 158.0 90.1 – 961.1

SSE Thermal 160.5 – 54.3 15.8 (1.0) 229.6

Gas Storage (5.7) – 0.8 – – (4.9)

Energy Customer Solutions

Business Energy (24.0) – 4.6 – – (19.4)

SSE Airtricity 44.0 – 7.5 – – 51.5

Distributed Energy (27.0) – 8.2 – (1.7) (20.5)

EPM 18.4 – 5.3 – – 23.7

Corporate

Corporate unallocated (58.4) (1.8) 61.6 2.7 (1.1) 3.0

Neos (2.8) – – 35.3 – 32.5

Total continuing operations 1,333.5 (20.6) 556.2 143.9 (17.7 ) 1,995.3

Discontinued operations

Gas Production 33.0 – – – – 33.0

SGN 173.0 – – 61.6 – 234.6

Total discontinued operations 206.0 – – 61.6 – 267.6

Total SSE Group 1,539.5 (20.6) 556.2 205.5 (17.7) 2,262.9

* The comparative operating profit by segment information has been restated. See note 2.1.

238 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

6. Other operating income and cost

Group operating profit on continuing operations is stated after charging/(crediting) the following items:

2022

£m

2021

£m

Depreciation of property, plant and equipment on continuing operations (i) (note 14) 544.8 523.3

Net exceptional gains on disposal (note 7) (4.3) (976.0)

Exceptional (credits)/charges (continuing operations) (note 7) (297.5) 125.7

Research costs 12.0 12.0

Lease charges (ii) 11.0 11.6

Release of deferred income in relation to capital grants and historic customer contributions (17.6) (17.7)

Gain on disposals (non-exceptional) (note 12) (67.1) (251.9)

Amortisation of other intangible assets 1.5 2.7

(i) Does not include exceptional impairment charges.

(ii) Represents the expense of leases with a duration of 12 months or less and leases for assets which are deemed “low value” under the principles of IFRS 16.

In addition, variable lease payments, which are not included within the measurement of lease liabilities as they do not depend on an index or rate, of £7.8m

(2021: £4.1m) were charged in the current year.

Auditor’s remuneration

2022

£m

2021

£m

Audit of these financial statements 0.4 0.4

Amounts receivable by the Company’s auditor and its associates in respect of:

Audit of financial statements of subsidiaries of the Company 3.1 1.9

Audit related assurance services 0.3 0.2

Other services fees 0.1 0.2

3.5 2.3

Total remuneration paid to auditor 3.9 2.7

Audit fees in the current year include scope changes and overruns of £0.4m (2021: £0.4m) related to the prior year audit. Assurance

and Tax service fees incurred in the year were £0.5m (2021: £0.4m). Audit related assurance services include fees incurred in relation

to regulatory accounts and returns required by Ofgem and comfort letters in connection with funding and debt issuance. A description

of the work of the Audit Committee is set out on pages 152 to 161  and includes an explanation of how auditor objectivity and

independence is safeguarded when non-audit services are provided by the auditors.

239SSE plc Annual Report 2022

7. Exceptional items and certain re-measurements

2022

£m

2021

£m

(restated*)

Continuing operations

Exceptional items (note 7.1)

Asset impairments and related (charges) and credits 322.6 (50.4)

Provisions for restructuring and other liabilities – (75.3)

322.6 (125.7)

Net (losses)/gains on disposals of businesses and other assets (17.6) 976.0

Total exceptional items 305.0 850.3

Certain re-measurements

Movement on operating derivatives (note 24) 2,100.4 590.1

Movement in fair value of commodity stocks (2.6) 8.5

Movement on financing derivatives (note 24) 21.0 55.6

Share of movement on derivatives in jointly controlled entities (net of tax) – (0.8)

Total certain re-measurements 2,118.8 653.4

Exceptional items and certain re-measurements on continuing operations before taxation 2,423.8 1,503.7

Taxation

Taxation on other exceptional items (79.0) 3.1

Taxation on certain re-measurements (408.0) (125.9)

Effect of deferred tax rate change in wholly owned entities (244.7) –

Effect of deferred tax rate change in jointly controlled entities (33.2) –

Taxation (764.9) (122.8)

Total exceptional items and certain re-measurements on continuing operations after taxation 1,658.9 1,380.9

Discontinued operations

Exceptional items

Gas production disposal and related charges (120.8) –

Net gain on disposal of jointly controlled entities 576.5 –

Share of movement on derivatives in jointly controlled entities (net of tax) (3.8) 1.6

Effect of deferred tax rate change in jointly controlled entities (85.5) –

Total exceptional items and certain re-measurements on discontinued operations after taxation 366.4 1.6

* The comparatives have been restated. See note 1.2.

240 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

7. Exceptional items and certain re-measurements continued

Exceptional items and certain remeasurements are disclosed across the following categories within the income statement:

2022

£m

2021

£m

(restated*)

Continuing operations

Cost of sales:

Movement on operating derivatives (note 24) 2,100.4 590.1

Movement in fair value of commodity stocks (2.6) 8.5

2,097.8 598.6

Operating costs:

Asset impairments and reversals 322.6 (30.1)

SSE Energy Services related restructuring costs and asset impairments – (24.2)

Other exceptional provisions and charges (25.1) (72.8)

297.5 (127.1)

Operating income:

Net gains on disposals of businesses and other assets 4.3 976.0

4.3 976.0

Joint ventures and associates:

Share of movement on derivatives in jointly controlled entities (net of tax) – (0.8)

Effect of deferred tax rate change in jointly controlled entities (33.2) –

(33.2) (0.8)

Operating profit 2,366.4 1,446.7

Finance income

Movement on financing derivatives (note 24) 21.0 55.6

Interest income on deferred consideration receipt 3.2 1.4

24.2 57.0

Profit before tax on continuing operations 2,390.6 1,503.7

Discontinued operations

Gas Production asset impairments and related charges (120.8) –

Joint ventures and associates:

Net gain on disposal of jointly controlled entities 576.5 –

Share of movement on derivatives in jointly controlled entities (net of tax) (3.8) 1.6

Profit before tax on discontinued operations 451.9 1.6

* The comparatives have been restated. See note 1.2.

7.1 Exceptional items

Exceptional items in the year ended 31 March 2022

In the year to 31 March 2022, the Group recognised a net exceptional credit of £305.0m arising from its continuing operations. The net

exceptional credit is primarily due to impairment reversals of £331.5m in relation to the Group’s GB combined cycle gas turbine (‘CCGT’)

power stations and the Group’s Great Island CCGT plant in Ireland and impairment reversals of £97.3m related to the Group’s Gas Storage

operations at Atwick and Aldbrough. These credits have been offset by an impairment loss of £106.9m recognised in relation to the Group’s

investment in Neos Networks, a further £18.9m loss recognised on completion of the disposal of SSE Contracting on 30 June 2021 and

£6.2m consideration adjustment associated with the disposal of the Group’s 50% stake in Neos Networks, which completed in the year

ended 31 March 2019.

In discontinued operations, the Group recognised an exceptional gain on the disposal of the Group’s 33.3% investment in SGN of

£576.5m, offset by an exceptional charge of £120.8m associated with the disposal of its Gas Production assets, which completed on

14 October 2021.

241SSE plc Annual Report 2022

The net exceptional charges/(credits) recognised can be summarised as follows:

Property, plant

and equipment

(note 14)

£m

Held

for sale

£m

Provisions and

other charges

£m

Investment

in joint ventures

£m

Other

receivables

£m

Total charges/

(credits)

£m

Thermal Electricity Generation (i) (331.6) – – – – (331.6)

Gas storage (ii) (97.3) – – – – (97.3)

SSE Contracting (iii) – – 18.9 – – 18.9

Neos Networks (iv) – – 6.2 106.9 – 113.1

Other credits (v) (0.6) – – – (7.5) (8.1)

Total exceptional items

continuing operations (429.5) – 25.1 106.9 (7.5) (305.0)

SGN disposal gain (vi) – – – – (576.5) (576.5)

Gas Production (vii) – 120.8 – – – 120.8

Total exceptional items

discontinued operations – 120.8 – – (576.5) (455.7)

Total exceptional items (429.5) 120.8 25.1 106.9 (584.0) (760.7)

(i) Thermal Electricity Generation – impairment reversals

At 31 March 2022, the Group has carried out a formal impairment review in order to assess the carrying value of its GB combined cycle

gas turbine (‘CCGT’) power stations and the Group’s Great Island CCGT plant in Ireland (see note 15.2). As a result of the assessment, the

Group has recognised an exceptional impairment reversal of £331.6m to the carrying value of the assets.

(ii) Gas Storage – impairment reversal

At 31 March 2022, the Group has carried out a formal impairment review in order to assess the carrying value of its Gas Storage operations

at Atwick and Aldbrough (see note 15.2). As a result of the assessment, the Group has recognised an exceptional impairment reversal of

£97.3m to the carrying value of the assets.

(iii) SSE Contracting – loss on disposal

On 30 June 2021, the Group completed the sale of its Contracting and Rail business to the Aurelius Group for headline consideration of

£22.5m and £5m of contingent consideration, based on earning targets within the business. Due to working capital adjustments, cash

consideration received was £0.2m. The Group recorded a further exceptional loss on disposal of £18.9m on completion, in addition to

the exceptional impairment loss of £51.2m recognised during the year ended 31 March 2021.

(iv) Neos Networks – investment impairment and adjustments to consideration

At 31 March 2022, the Group has assessed that the value of its investment in Neos Networks has been impaired by £106.9m. See note 15

for detail of this assessment.

In the year ended 31 March 2019, the Group disposed of 50% of its stake in Neos Networks Limited (formerly SSE Telecommunications

Limited) to Infracapital Partners III, ‘Infracap’, for initial consideration of £215.0m and the potential for a further £165m of contingent

consideration dependent on achievement of certain targets. In the year ended 31 March 2022, the Group reassessed its position relating

to the retained contingent elements and its contractual position with Infracap, with the net impact being the recognition of an exceptional

charge of £6.2m.

(v) Other credits

At 31 March 2022, the Group recognised further exceptional credits of £8.1m relating to reversal of previously recognised exceptional

charges or judgements. These included i) reassessment of impairments associated with Heat Networks assets (credit of £0.6m), ii) credit

of £3.2m (2021: £1.4m) in relation the unwind of discounting on deferred consideration recognised on the part disposal of SSE Slough

Multifuel Limited in the year ending 31 March 2021, iii) credit of £4.3m in relation to a gain on disposal of historically impaired land at

Seabank.

Exceptional items within discontinued operations in the year ended 31 March 2022

(vi) SGN disposal gain

On 2 August 2021, the Group announced it had agreed to sell its 33.3% investment in SGN to a consortium comprising existing SGN

shareholders Ontario Teachers’ Pension Plan Board and Brookfield Super-Core Infrastructure Partners for cash consideration of £1,225m.

The transaction completed on 22 March 2022, with the Group recognising an exceptional gain on disposal of £576.5m. See note 12.2 for

further information.

242 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

7. Exceptional items and certain re-measurements continued

7.1 Exceptional items continued

(vii) Gas Production – loss on disposal

The Group recorded an exceptional disposal loss of £120.8m related to sale of its Gas Production assets and liabilities to Viaro Energy

through its subsidiary RockRose Energy Limited which completed on 14 October 2021. At 30 September 2021 an impairment charge

of £93.9m was recognised in relation to the loss on sale incurred to 30 September 2021 under the transaction’s lock box mechanism.

The further £26.9m recognised in the second half of the financial year represents the profit of the business due to the buyer between

1 October 2021 and the disposal date on 14 October 2021. See note 12.2 for further information.

Exceptional items in the year ended 31 March 2021

In the year to 31 March 2021, the Group recognised a net exceptional credit of £850.3m in its continuing operations. The net exceptional

credit was primarily due to gains on disposal of the Group’s stakes in Ferrybridge Multifuel (£669.9m), Walney offshore windfarm (£188.7m)

and Maple SmartMeterCo (£70.4m). In addition, the Group reversed £26.1m of prior year exceptional provisions for bad debt arising from

coronavirus and recorded exceptional gains following the fair value uplift of its retained stakes in SSE Slough Multifuel Limited (£21.3m)

and Seagreen Holdco 1 Limited (£25.7m). These exceptional credits were offset by an impairment to the Group’s Great Island Thermal

CCGT plant of £58.1m and a write down to fair value less costs to sell SSE Contracting, which was held for sale at 31 March 2021, of

£51.2m. Finally, the Group incurred £24.2m of further charges related to the disposal of SSE Energy Services which was completed in 2020

and reduced the overall gain on disposal, completed in the year ended 31 March 2019, of SSE Telecommunications Limited by £21.8m.

The net exceptional charges/(credits) recognised can be summarised as follows:

Property, plant

and equipment

(note 14)

£m

Intangible assets

(note 13)

£m

Provisions and

other charges

£m

Trade

receivables

£m

Other

receivables

£m

Total charges/

(credits)

£m

Thermal Electricity Generation (i) 58.1 – – – – 58.1

Customer bad debt provisioning (ii) – – – (26.1) – (26.1)

SSE Contracting (iii) – – 51.2 – – 51.2

SSE Energy Services disposal costs (iv) 15.1 5.2 3.9 – – 24.2

Neos Networks (v) – – 20.2 – 1.6 21.8

Other charges (vi) (1.9) – – – (1.6) (3.5)

Disposal gains (vii) – – – – (976.0) (976.0)

Total exceptional items 71.3 5.2 75.3 (26.1) (976.0) (850.3)

(i) Thermal Electricity Generation – impairment charges

At 31 March 2021, the Group carried out a formal impairment review in order to assess the carrying value of its CCGT plant at Great

Island. As a result of the assessment, the Group recognised an exceptional impairment of £58.1m to the carrying value of the asset,

which arose following reductions in forward price curves and forecast electricity demand in Ireland.

(ii) Customer bad debt provisioning

In the year ending 31 March 2020, the Group recognised an exceptional provision for exposure to bad debts of £33.7m specifically

related to the coronavirus pandemic within its Business Energy (£27.7m) and Airtricity (£6.0m) businesses. The initial outbreak of the

pandemic happened late in 2019 and the UK remained in lockdown at the date of approval of the Annual Report on 16 June 2020, which

meant that there was significant uncertainty surrounded the judgement at that date. The provision reflected the Group’s best estimate at

that date and was treated as an adjusting post balance sheet event. During the year to 31 March 2021, the Group achieved higher cash

collections in recovery of its debt than was expected, largely due to government support schemes and other factors. As a result, an

exceptional reversal of the provision of £20.1m in its Business Energy and £6.0m in its Airtricity businesses was recognised.

(iii) SSE Contracting – impairment charges

On 1 April 2021, subsequent to the balance sheet date, the Group announced the sale of its Contracting & Rail business to Aurelius Group.

The transaction was for initial consideration of £17.5m, plus a loan note receivable of £5m, and a further £5m of contingent consideration

based upon future financial performance of the business. At 31 March 2021, the Group classified its interest in the business as held for sale

and impaired the carrying amount of the held for sale asset to its net realisable value, resulting in an impairment of £51.2m. The transaction

completed on 30 June 2021.

(iv) SSE Energy Services disposal costs

In 2020, the Group disposed of its SSE Energy Services business to Ovo Energy Limited, incurring an exceptional loss of £237.7m. The

calculation of the loss included estimates for costs of disposal and separation which were subsequently re-estimated in the year to

31 March 2021. These additional costs of disposal, which total £24.2m, included increased estimates of the cost of IT separation and

decommissioning and the impairment of SSE properties which were wholly (or substantially) leased to the disposal group.

243SSE plc Annual Report 2022

(v) Neos Networks adjustment to consideration

In the financial year to 31 March 2019, the Group disposed of 50% of its stake in Neos Networks Limited (formerly SSE Telecommunications

Limited) to Infracapital Partners III, ‘Infracap’, for initial consideration of £215.0m and the potential for a further £165m of contingent

consideration dependent on achievement of certain targets. In the year ended 31 March 2021, the Group received further cash proceeds

of £44m relating to previously accrued deferred consideration but also reassessed its position relating to the retained contingent elements

and its contractual position with Infracap, with the net impact being the recognition of an exceptional charge of £20.2m.

(vi) Other charges

At 31 March 2021, the Group recognised further exceptional credits of £3.4m relating to reversal of previously recognised exceptional

charges or judgements. These included i) reassessment of impairments associated with Heat Networks assets (credit of £2.1m), ii) credit

of £1.3m in relation to a gain on disposal of the historically impaired Barkip anerobic digestion plant.

(vii) Disposal gains

During the year ended 31 March 2021 the Group progressed with its disposal plan for non-core assets announced in June 2020, which

resulted in exceptional gains on disposal. The exceptional gains on disposal totalling £976.0m are summarised below. Further detail on

the disposals in the year is provided in note 12.

On 13 October 2020, the Group announced it had reached an agreement to dispose of its 50% investment in Multifuel Energy Limited

and Multifuel Energy 2 Limited (together ‘MEL’) to European Diversified Infrastructure Fund III for headline consideration of £995m. The

transaction completed on 7 January 2021. The Group recorded an exceptional gain on disposal of £669.9m.

On 2 September 2020, the Group agreed to sell its subsidiary, SSE Renewables Walney Limited, to Greencoat UK Wind Plc for consideration

of £350m, resulting in an exceptional gain on sale of £188.7m. SSE Renewables Walney Limited was the holding company of the Group’s

non-operated 25.1% stake in Walney Offshore Wind Farm. The disposal was not considered to be aligned to the Group’s strategic objective

of gaining value from divestment of stakes in offshore or international wind developments, therefore the gain on disposal was recognised as

exceptional.

On 23 September 2020, the Group disposed of its 33% investment in Maple Topco Limited, the smart meter services provider, for

proceeds of £95.3m, and recognised an exceptional gain on disposal of £70.4m.

On 3 June 2020, the Group disposed of a 51% stake in its wholly owned subsidiary, Seagreen Holdco 1 Ltd (‘Seagreen 1’), to Total. The

transaction was for initial cash proceeds of £70m, plus contingent consideration of up to £60m dependent upon future criteria being met.

The Group assessed that control of the company was lost on that date, and that the investment in Seagreen 1 should be accounted for as

an equity accounted joint venture under the principles of IFRS 11 “Joint Arrangements”. The Group acquired the joint venture investment at

fair value under the principles of IFRS 10 “Consolidated Financial Statements”, resulting in a total gain of £49.0m. Of that gain, £25.7m was

recognised as exceptional, as it represented the fair value gain on acquisition of the joint venture investment retained by the Group. The

remaining £23.3m of the gain was included in underlying operations, in line with the Group’s stated exceptional policy (see note 3.2).

On 2 April 2020, the Group disposed of a 50% stake in its wholly owned subsidiary, SSE Slough Multifuel Ltd, to Copenhagen Infrastructure

Partners. The transaction was for initial cash proceeds of £10m, plus contingent consideration of up to £59.1m dependent upon future

criteria being met. The Group assessed that control of the company was lost on that date, and that the investment in Slough Multifuel

should be accounted for as an equity accounted joint venture under the principles of IFRS 11. The Group acquired the joint venture

investment at fair value under the principles of IFRS 10, resulting in a total gain of £41.7m. Of that gain, £21.3m was recognised as

exceptional, as it represented the fair value gain on acquisition of the joint venture investment retained by the Group. The remaining

£20.4m of the gain was included in underlying operations, in line with the Group’s stated exceptional policy (see note 3.2).

Exceptional items in the year ended 31 March 2020

In the year to 31 March 2020, the Group recognised a net exceptional charge of £209.7m in its continuing operations and a charge of

£529.0m in its discontinued operations. The net exceptional charge in continuing operations was primarily due to the closure of Fiddler’s

Ferry coal fired power station (£112.3m), provisions for bad debts as a result of coronavirus of £33.7m, impairments to SSE assets as a

result of the disposal of SSE Energy Services (£48.8m) and other asset impairments and restructuring costs of £45.6m. These exceptional

charges were offset by gains on disposal of £30.6m in total related to recognition of additional contingent consideration, offset by

related costs and including £2.4m of discount unwind, in relation to the 31 March 2019 disposal of SSE Telecommunications and a

completion accounts adjustment to the gain on sale of Stronelairg and Dunmaglass windfarms, also from 31 March 2019 financial year.

In the discontinued operations, the Group incurred an exceptional impairment on its Gas Production assets of £291.3m to adjust the

carrying value of the assets to their expected fair value on disposal, a loss on disposal of SSE Energy Services of £226.9m and

restructuring costs of £10.8m within SSE Energy Services.

244 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

7. Exceptional items and certain re-measurements continued

7.1 Exceptional items continued

The net exceptional items recognised can be summarised as follows:

Property, plant

and equipment

£m

Intangible assets

£m

Inventories

£m

Provisions and

other charges

£m

Trade

receivables

£m

Other

receivables

£m

Total charges/

(credits)

£m

Thermal Electricity

Generation (i) – – 75.6 35.0 – 1.7 112.3

Other charges (ii) – 83.0 – 11.3 33.7 – 128.0

Other income (iii) – 1.9 – 5.3 – (37.8) (30.6)

Total continuing

operations – 84.9 75.6 51.6 33.7 (36.1) 209.7

SSE Energy Services (iv) – – – 237.7 – – 237.7

Gas Production (v) 231.1 60.2 – – – – 291.3

Total SSE Group 231.1 145.1 75.6 289.3 33.7 (36.1) 738.7

7.2 Certain re-measurements

The Group, through its EPM business, enters into forward commodity purchase (and sales) contracts to meet the future demand

requirements of its Business Energy and SSE Airtricity supply businesses and to optimise the value of its SSE Renewables and SSE Thermal.

Certain of these contracts (predominately electricity, gas and other commodity purchase contracts) are determined to be derivative financial

instruments under IFRS 9 “Financial Instruments” and as such are required to be recorded at their fair value. Conversely, commodity contracts

that are not financial instruments under IFRS 9 (predominately electricity sales contracts) are accounted for as ‘own use’ contracts and are not

recorded at their fair value. In addition, inventory purchased to utilise excess capacity ahead of an optimised sale in the market by the Gas

Storage business is held as trading inventory at fair value.

Changes in the fair value through the profit and loss statement of those commodity contracts designated as financial instruments

and trading inventory are therefore reflected in the income statement. The Group shows the change in the fair value of these forward

contracts and trading inventory separately as “certain re-measurements”, as the Group does not believe this mark-to-market movement

is relevant to the underlying performance of its operating segments.

At 31 March 2022, volatility in global commodity markets has resulted in an ‘in the money’ mark-to-market remeasurement on commodity

contracts (predominately gas purchases) designated as financial instruments and trading inventory of £2,100.4m (2021: £590.1m). However,

the Group has executory ‘own use’ designated commodity contracts (predominately electricity sales) which, if classified as financial

instruments and remeasured at fair value in accordance with IFRS 9, would significantly reduce the total fair value remeasurement and

closing asset value. A significant proportion of ‘in the money’ mark-to-market remeasurement recorded at 31 March 2022 and unvalued

‘own use’ designated commodity contracts are expected to reverse in the next financial year as the relevant commodity is delivered. The

remaining settlement of these contracts will predominately be within the subsequent 12 to 24 months. The mark-to-market gain in the year

has resulted in a deferred tax charge of £408.0m, which has also been classified as exceptional.

The re-measurements arising from IFRS 9 and the associated deferred tax are disclosed separately to aid understanding of the underlying

performance of the Group.

This category also includes the income statement movement on financing derivatives (and hedged items) as described in note 24.

7.3 Change in UK corporation tax rates

The Government announced in the Budget on 3 March 2021 that the main rate of corporation tax will increase to 25% for the financial year

beginning 1 April 2023. Prior to this date, the rate of corporation tax will remain at 19%. The increase to 25% was substantively enacted at

24 May 2021 and therefore the deferred tax balances have been re-measured at 31 March 2022. The rate change resulted in an income

statement charge for continuing operations of £244.7m and an increase to the Group’s deferred tax liabilities (including the effect of

equity accounted items) of £279.5m. The impact of the rate change on the Group’s share of profits of its equity accounted investments

was a charge of £55.2m for continuing operations and a charge of £85.6m for discontinued operations.

Finance Bill 2021 also included draft legislation in respect of Capital Allowance ‘Super-deductions’ of 130% in respect of General Pool

plant and machinery, alongside First Year Allowances of 50% for Special Rate Pool plant and machinery for the two years commencing

1 April 2021. The Group expects these changes, which were substantively enacted on 24 May 2021, to significantly increase the deduction

for Capital Allowances in the financial years ending 31 March 2022 and 31 March 2023. An estimate of the super-deduction has been taken

into account when calculating the effective tax for the current year.

Taxation

The Group has separately recognised the tax effect of the exceptional items and certain re-measurements summarised above.

245SSE plc Annual Report 2022

8. Directors and employees

8.1 Staff costs

2022

£m

2021

£m

Continuing operations

Staff costs:

Wages and salaries 517.6 526.8

Social security costs 60.1 58.7

Share-based remuneration 17.6 18.2

Pension costs (note 23) 93.4 96.7

688.7 700.4

Less: capitalised as property, plant and equipment or intangible assets (157.4) (144.8)

531.3 555.6

The figures in the table above include £11.9m of staff costs related to the Group’s Contracting and Rail business which was sold on

30 June 2021 (2021: £83.3m).

8.2 Employee numbers

2022

Number

2021

Number

Numbers employed at 31 March in continuing operations 10,754 12,512

Numbers employed at 31 March in discontinued operations – 1

10,754 12,513

The average number of people employed by the Group (including Executive Directors) during the year was:

2022

Number

2021

Number

Continuing operations

SSEN Transmission 814 572

SSEN Distribution 3,984 3,704

SSE Renewables 1,286 1,084

SSE Thermal 432 466

Gas Storage 84 80

Energy Customer Solutions

Business Energy 817 832

SSE Airtricity 766 688

Distributed Energy

735 2,558

EPM 238 158

Corporate Services 1,598 1,547

Total from continuing operations 10,754 11,689

Discontinued operations

Gas Production – 2

Total from discontinued operations – 2

Total SSE Group 10,754 11,691

1 Distributed energy employee numbers at March 2021 included 1,753 employees of the disposed Contracting and Rail business.

246 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

8. Directors and employees continued

8.3 Remuneration of key management personnel

The remuneration of the key management personnel of the Group (excluding amounts equivalent to pension value increases as set out

in the Remuneration Report), is set out below in aggregate.

2022 2021

Executive

committee

members

£m

Executive

directors

£m

Total

£m

Executive

committee

members

£m

Executive

directors

£m

Total

£m

Salaries and short term employee benefits 2.2 4.9 7.1 1.9 3.7 5.6

Social security costs 0.4 0.9 1.3 0.3 0.5 0.8

Post-employment benefits 0.3 0.9 1.2 0.4 1.0 1.4

Share based benefits 1.2 4.3 5.5 1.2 2.1 3.3

4.1 11.0 15.1 3.8 7.3 11.1

Key management personnel are responsible for planning, directing and controlling the operations of the Group and are designated

Persons Discharging Management Responsibilities (‘PDMRs’) in line with the market abuse regulation definition. The Group has three

(2021: three) Executive directors. Executive committee members included in the table above at 31 March 2022 are the Managing Director

of Networks; the Managing Director of SSEN Transmission; the Managing Director of SSE Renewables and the Group’s General Counsel.

Further information about the remuneration of individual directors is provided in the audited part of the Remuneration Report.

Information regarding transactions with post-retirement benefit plans is included in note 23.

Non-executive directors were paid fees of £1.2m during the current year (2021: £1.0m).

247SSE plc Annual Report 2022

9. Finance income and costs

Recognised in income statement

2022

2021

(restated*)

Before

exceptional

items and

certain

re-

measurements

£m

Exceptional

items and

certain

re-

measurements

£m

Total

£m

Before

exceptional

items and

certain

re-

measurements

£m

Exceptional

items and

certain

re-

measurements

£m

Total

£m

Finance income:

Interest income from short term deposits 0.8 – 0.8 1.9 – 1.9

Interest on pension scheme assets (i) 7.6 – 7.6 8.3 – 8.3

Foreign exchange translation of monetary assets

and liabilities – – – 1.3 – 1.3

Other interest receivable:

Joint ventures and associates 46.8 – 46.8 43.9 – 43.9

Other receivable 23.8 3.2 27.0 22.8 1.4 24.2

70.6 3.2 73.8 66.7 1.4 68.1

Total finance income 79.0 3.2 82.2 78.2 1.4 79.6

Finance costs:

Bank loans and overdrafts (16.2) – (16.2) (24.0) – (24.0)

Other loans and charges (340.2) – (340.2) (323.2) – (323.2)

Foreign exchange translation of monetary assets

and liabilities (14.6) – (14.6) – – –

Notional interest arising on discounted provisions (5.7) – (5.7) (3.8) – (3.8)

Lease charges (30.4) – (30.4) (35.3) – (35.3)

Less: interest capitalised (ii) 30.7 – 30.7 14.2 – 14.2

Total finance costs (376.4) – (376.4) (372.1) – (372.1)

Changes in fair value of financing derivative assets or

liabilities at fair value through profit or loss – 21.0 21.0 – 55.6 55.6

Net finance costs (297.4) 24.2 (273.2) (293.9) 57.0 (236.9)

Presented as:

Finance income 79.0 24.2 103.2 78.2 57.0 135.2

Finance costs (376.4) – (376.4) (372.1) – (372.1)

Net finance costs (297.4) 24.2 (273.2) (293.9) 57.0 (236.9)

* The comparatives have been restated. See note 1.2.

(i) The interest income on net pension assets for the year ended 31 March 2022 of £7.6m (2021: £8.3m) represents the interest earned under IAS 19.

(ii) The capitalisation rate applied in determining the amount of borrowing costs to capitalise in the period was 3.86% (2021: 3.61%).

248 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

9. Finance income and costs continued

Adjusted net finance costs are arrived at after the following adjustments:

2022

£m

2021

£m

(restated*)

Net finance costs (273.2) (236.9)

(add)/less:

Share of interest from joint ventures and associates (67.8) (82.4)

Interest on pension scheme liabilities (7.6) (8.3)

Movement on financing derivatives (note 24) (21.0) (55.6)

Exceptional item (3.2) (1.4)

Adjusted net finance costs

APM

(372.8) (384.6)

Notional interest arising on discounted provisions 5.7 3.8

Lease charges 30.4 35.3

Hybrid coupon payment (note 22.5(iii)) (50.7) (46.6)

Adjusted net finance costs for interest cover calculations

APM

(387.4) (392.1)

* The comparatives have been restated. See note 1.2.

Recognised in other comprehensive income

2022

£m

2021

£m

Loss on effective portion of cash flow hedges (before tax) 22.9 (44.7)

Share of joint venture/associate loss on effective portion of cash flow hedges (before tax) 224.0 30.6

Total recognised in other comprehensive income 246.9 (14.1)

Other comprehensive income of £246.9m includes £28.6m, which was realised on the disposal of SGN.

10. Taxation

10.1 Analysis of charge recognised in the income statement

2022 2021

Before

exceptional

items and certain

re-

measurements

£m

Exceptional

items and certain

re-

measurements

£m

Total

£m

Before

exceptional

items and certain

re-

measurements

£m

Exceptional

items and

certain

re-

measurements

£m

Total

£m

Current tax

UK corporation tax 82.5 8.8 91.3 84.1 6.2 90.3

Adjustments in respect of previous years (5.9) – (5.9) (11.4) – (11.4)

Total current tax 76.6 8.8 85.4 72.7 6.2 78.9

Deferred tax

Current year 76.7 478.2 554.9 34.0 113.3 147.3

Effect of change in tax rate – 244.7 244.7 – – –

Adjustments in respect of previous years (2.2) – (2.2) (5.2) 3.3 (1.9)

Total deferred tax 74.5 722.9 797.4 28.8 116.6 145.4

Total taxation charge 151.1 731.7 882.8 101.5 122.8 224.3

The Group has separately recognised the tax effect of the exceptional items and certain re-measurements summarised above. The rate

change to 25% in respect of periods commencing after 1 April 2023 included in Finance Bill 2021 has been recognised during the year

ended 31 March 2022, as it was substantively enacted on 24 May 2021.

SSE continues to be accredited with the Fair Tax Mark. As a consequence, these financial statements include a number of areas of

enhanced disclosure which have been provided in order to develop stakeholder understanding of the tax the Group pays and the

reported total taxation charge along with additional commentary on the main reconciling items.

These can be seen at section A2 .

249SSE plc Annual Report 2022

The majority of the Group’s profits are earned in the UK, with the standard rate of UK corporation tax being 19% for the year to 31 March

2022 (2021: 19%). The Group’s Gas Production business, which is included within discontinued operations for the year ended 31 March

2022 (and 31 March 2021), is taxed at a UK corporation tax rate of 30% plus a supplementary charge of 10% (combined 40%). Profits

earned by the Group in the Republic of Ireland are taxable at either 12.5% or 25%, depending upon the nature of the income.

The majority of the Group’s profits are earned in the UK, with the standard rate of UK corporation tax being 19% for the year to 31 March

2021 (2020: 19%). The Group’s Gas Production business, which is included within discontinued operations for the year ended 31 March

2022 (and 31 March 2021), is taxed at a UK corporation tax rate of 30% plus a supplementary charge of 10% (combined 40%). Profits

earned by the Group in the Republic of Ireland are taxable at either 12.5% or 25%, depending upon the nature of the income.

The ‘adjusted current tax charge’ and the ‘adjusted effective rate of tax’, which are presented in order to best represent underlying

performance by making similar adjustments to the ‘adjusted profit before tax’ measure, are arrived at after the following adjustments:

Continuing operations

2022

£m

2022

2021

£m

(restated*)

2021

(restated*)

Group tax charge and effective rate 882.8 25.4 224.3 9.3

Less: reported deferred tax charge and effective rate (797.4) (22.9) (145.4) (6.1)

Reported current tax charge and effective rate 85.4 2.5 78.9 3.2

Effect of adjusting items 4.8 5.1

Reported current tax charge and effective rate on adjusted basis 85.4 7.3 78.9 8.3

add:

Share of current tax from joint ventures and associates 30.6 2.6 13.2 1.4

less:

Current tax credit on exceptional items (8.9) (0.7) (6.2) (0.6)

Adjusted current tax charge and effective rate

APM

107. 1 9.2 85.9 9.1

* The comparatives have been restated. See note 1.2.

Tax charge/(credit) recognised in other comprehensive income/(loss):

2022

£m

2021

£m

Relating to:

Pension scheme actuarial movements 72.6 (3.1)

Cash flow and net investment hedge movements 4.4 (9.9)

Other (1.9) (1.7)

75.1 (14.7)

All tax recognised through other comprehensive income is deferred tax.

See further Taxation disclosures at A2 .

10.2 Current tax liabilities

2022

£m

2021

£m

Corporation tax (asset)/liability (8.8) 0.1

Uncertain tax positions

The Group invests heavily in infrastructure, on which significant amounts of capital allowances are potentially available. The extent to which

capital allowances are available on any single asset is, however, very much dependent upon the fact pattern for the asset involved, and there

will often be an element of uncertainty as to how capital allowances legislation applies in those circumstances. Reaching agreement with

tax authorities as to the amount of capital allowances available can take a number of years and sometimes can only be resolved through a

formal legal process.

The calculation of the Group’s total tax charge therefore necessarily involves a degree of estimation and judgement in relation to certain

items for which the tax treatment cannot be finally determined until resolution has been reached with the tax authorities or, if required,

through a formal legal process. At 31 March 2022, the Group has recognised provisions totalling £27.9m in respect of uncertain tax

positions, primarily in relation to the availability of capital allowances (2021: £37.6m). The Group estimates that a reasonably possible

range of settlement outcomes for the uncertain tax positions could be in the range from nil to the full value of the provision, due to the

binary nature of the decision as to whether capital allowances are available or not.

250 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

10. Taxation continued

10.2 Current tax liabilities continued

Due to the uncertainty associated with such tax positions, it is possible that at a future date, and on conclusion of these open tax

positions, the final outcomes may vary significantly. While a range of outcomes is reasonably possible, the Group continues to believe

that it has made appropriate provision for periods which are open and not yet agreed with the tax authorities.

In December 2020, the Group’s case concerning the availability of capital allowances on Glendoe Hydro Electric Station was heard at the

Court of Appeal. A decision was released in February 2021, which was largely in the Group’s favour. HMRC have sought permission to have

an appeal heard against the decision by the Supreme Court, with the Supreme Court granting HMRC leave to appeal on 30 March 2022.

The case has not yet been listed for hearing at the Supreme Court. Any movement in the amounts carried for other uncertain tax positions

during the next twelve months will be driven by tax litigation the Group is not directly involved in and is unable to predict the outcome of.

10.3 Deferred taxation

The following are the deferred tax liabilities and assets recognised by the Group and movements thereon during the current and prior

reporting periods:

Accelerated

capital

allowances

£m

Fair value

gains/

(losses) on

derivatives

£m

Retirement

benefit

obligations

£m

Other

£m

Total

£m

At 31 March 2020 704.5 (140.6) 65.0 16.9 645.8

(Credit)/charge to income statement on continuing operations 13.5 119.0 5.9 7.0 145.4

(Credit)/charge to equity – (3.7) (3.1) (1.7) (8.5)

(Credit)/charge recognised on disposal (0.2) – – (5.7) (5.9)

Transfers 15.8 – – (15.8) –

Transferred to held for sale 0.2 – – – 0.2

Exchange adjustments – – – (2.7) (2.7)

At 31 March 2021 733.8 (25.3) 67.8 (2.0) 774.3

(Credit)/charge to income statement on continuing operations 407.6 399.4 5.8 (15.4) 797.4

(Credit)/charge to equity – 4.4 72.6 (1.9) 75.1

Exchange adjustment 0.2 – – (1.4) (1.2)

At 31 March 2022 1,141.6 378.5 146.2 (20.7) 1,645.6

Certain deferred tax assets and liabilities have been offset, including the asset balances analysed in the tables above. The following is an

analysis of the deferred tax balances (after offset) for financial reporting purposes:

2022

£m

2021

£m

Deferred tax liabilities 1,716.0 801.6

Deferred tax assets (70.4) (27.3)

Net deferred tax liabilities/(assets) 1,645.6 774.3

In total there are £6.0m (2021: £103.5m) of unrecognised deferred tax assets. The Group has now disposed of its offshore interest which

formed the majority of the unrecognised deferred tax asset at 31 March 2021. The group has not recognised a deferred tax asset on

trading losses of £47.6m (2021: £49.6m) in the Republic of Ireland. These assets have not been recognised as the Group is uncertain that

there will be sufficient future profits against which to utilise the assets. There is no time limit for expiry of the losses or allowances to

which they relate.

No deferred tax is recognised on the unremitted earnings of overseas subsidiaries, associates and joint ventures. As the earnings are

continually reinvested by the Group, no tax is expected to be payable on them in the foreseeable future. Total unremitted earnings at

31 March 2022 were £350.8m (2021: £281.5m).

251SSE plc Annual Report 2022

11. Dividends and earnings per share

11.1 Ordinary dividends

2022 Total

£m

Settled via scrip

£m

Pence per

ordinary share

2021 Total

£m

Settled via scrip

£m

Pence per

ordinary share

Interim – year ended 31 March 2022 271.8 28.2 25.5 – – –

Final – year ended 31 March 2021 590.5 327.5 56.6 – – –

Interim – year ended 31 March 2021 – – – 254.3 13.5 24.4

Final – year ended 31 March 2020 – – – 582.1 25.5 56.0

862.3 355.7 836.4 39.0

The final dividend of 56.6p per ordinary share declared in respect of the financial year ended 31 March 2021 (2020: 56.0p) was approved

at the Annual General Meeting on 22 July 2021 and was paid to shareholders on 23 September 2021. Shareholders were able to elect to

receive ordinary shares credited as fully paid instead of the cash dividend under the terms of the Company’s scrip dividend scheme. For

dividends paid in relation to the financial year ended 31 March 2022 and in relation to the subsequent years to 31 March 2026, the Group

will repurchase shares to reduce the scrip’s dilutive effects, if the scrip take-up exceeds 25% of the full year dividend in any given year.

An interim dividend of 25.5p per ordinary share (2021: 24.4p) was declared and paid on 10 March 2022 to those shareholders on the SSE

plc share register on 14 January 2022. Shareholders were able to elect to receive ordinary shares credited as fully paid instead of the

interim cash dividend under the terms of the Company’s scrip dividend scheme.

The proposed final dividend of 60.2p per ordinary share based on the number of issued ordinary shares at 31 March 2022 is subject to

approval by shareholders at the Annual General Meeting and has not been included as a liability in these financial statements. Based on

shares in issue at 31 March 2022, this would equate to a final dividend of £646.0m.

11.2 Basic and adjusted earnings per share

The calculation of basic earnings per ordinary share at 31 March 2022 is based on the net profit attributable to ordinary shareholders and

a weighted average number of ordinary shares outstanding during the year ended 31 March 2022.

Adjusted earnings per share has been calculated by excluding the charge for deferred tax, interest on net pension liabilities under IAS 19,

retained Gas Production decommissioning costs, the depreciation charged on fair value uplifts and the impact of exceptional items and

certain re-measurements (note 7).

Continuing operations

2022

Earnings

£m

2022

Earnings per

pence

2021

Earnings

£m

(restated*)

2021

Earnings per

pence

(restated*)

Earnings attributable to ordinary shareholders 3,031.4 287.3 2,276.2 218.7

Less: earnings attributable to discontinued operations (482.7) (45.7) (129.1) (12.4)

Basic earnings on continuing operations used to calculate adjusted EPS 2,548.7 241.6 2,147.1 206.3

Exceptional items and certain re-measurements (note 7) (1,658.9) (157. 3) (1,380.9) (132.8)

Basic excluding exceptional items and certain re-measurements 889.8 84.3 766.2 73.5

Adjusted for:

Decommissioning Gas Production 13.1 1.2 – –

Depreciation charge on fair value uplifts 20.6 2.0 20.6 2.0

Interest on net pension scheme assets/(liabilities) (note 9) (7.6) (0.7) (8.3) (0.8)

Deferred tax 74.5 7.1 28.8 2.8

Deferred tax from share of joint ventures and associates 15.8 1.5 9.1 0.9

Adjusted

APM

1,006.2 95.4 816.4 78.4

Basic 2,548.7 241.6 2,147.1 206.3

Dilutive effect of outstanding share options – (0.5) – (0.3)

Diluted 2,548.7 241.1 2,147.1 206.0

252 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

11. Dividends and earnings per share continued

11.2 Basic and adjusted earnings per share continued

Reported earnings per share

2022

Earnings

£m

2022

Earnings per

pence

2021

Earnings

£m

(restated*)

2021

Earnings per

pence

(restated*)

Basic

Earnings per share on continuing operations 2,548.7 241.6 2,147.1 206.3

Earnings per share on discontinued operations 482.7 45.7 129.1 12.4

Earnings per share attributable to ordinary shareholders 3,031.4 287. 3 2,276.2 218.7

Diluted earnings per share on continuing operations 2,548.7 241.1 2,147.1 206.0

Diluted earnings per share on discontinued operations 482.7 45.7 129.1 12.3

Diluted earnings per share attributable to ordinary shareholders 3,031.4 286.8 2,276.2 218.3

The weighted average number of shares used in each calculation is as follows:

31 March 2022

Number of

(millions)

31 March 2021

Number of

(millions)

For basic and adjusted earnings per share 1,055.0 1,040.9

Effect of exercise of share options 2.0 1.6

For diluted earnings per share 1,057.0 1,042.5

11.3 Dividend cover

The Group’s adjusted dividend cover metric is calculated by comparing adjusted earnings per share on continuing operations to the

projected dividend per share payable to ordinary shareholders.

2022

Earnings per

share (pence)

2022

Dividend per

(pence)

2022

Dividend cover

(times)

2021

Earnings per

share (pence)

(restated*)

2021

Dividend per

share (pence)

2021

Dividend cover

(times)

(restated*)

Reported earnings per share

(continuingoperations) 241.6 85.7 2.82 206.3 81.0 2.55

Adjusted earnings per share

(continuing operations) APM

95.4 85.7 1.11 78.4 81.0 0.97

* The comparatives have been restated. See note 1.2.

12. Acquisitions, disposals and held-for-sale assets

12.1 Acquisitions

Acquisition of 80% equity interest in Japanese offshore wind development platform

On 29 October 2021 the Group, through its wholly owned subsidiary SSE Renewables International Holdings Limited, completed the

acquisition of an 80% equity interest in an offshore wind development platform from Pacifico Energy and its affiliates for $193m USD

upfront cash consideration and a further $30m USD deferred consideration subject to a number of conditions. This acquisition is aligned

to the Group’s published strategy to pursue overseas renewable opportunities.

An 80% equity stake was acquired in the following entities and vehicles: SSE Pacifico K.K., Aichi Offshore Wind Power No.1 G.K., Aichi

Offshore Wind Power No.2 G.K., Enshunada Offshore Wind Power No.1 G.K., Goto-Fukue Offshore Wind Power G.K., Izu Islands Offshore

Wind Power G.K., Minami-Izu Offshore Wind Power No.1 G.K., Niigata Offshore Wind Power No.1 G.K., Oki Islands Offshore Wind Power

G.K., Wakayama-West Offshore Wind Power No.1 G.K. and Wakayama-West Offshore Wind Power No.2 G.K.

Acquisition costs of £7.2m were expensed to operating costs in the year. The subsidiaries acquired had nil revenue and contributed a loss

of £0.1m to the consolidated result of the Group for the year. The assets and liabilities acquired largely comprise tangible and intangible

assets, being windfarm site development costs and goodwill as set out in the table below. The goodwill recognised represents early

stage intangible development costs that do not qualify for separate recognition. The non-controlling interest acquired was measured at

fair value, where fair value represented the non-controlling interest’s proportionate share of the assets and liabilities acquired through

the transaction.

253SSE plc Annual Report 2022

Fair value at

29 October 2021

Assets acquired

Intangible development assets 20.5

Cash 4.3

Other assets 0.4

Total net assets acquired 25.2

Non-controlling interest (40.6)

Goodwill 176.7

161.3

Cash consideration 141.3

Deferred consideration 20.0

161.3

During the year the Group made other smaller asset acquisitions (of special purpose vehicles as opposed to businesses) for consideration of

£4.0m. In the prior year there were no significant acquisitions. The acquired intangible assets in note 13 of £197.8m consist of the goodwill

balance and development assets noted above (£197.2m) plus other immaterial acquired assets. The cash consideration for the business

combination of £141.3m is included in the Group’s Adjusted investment, capital and acquisition metric.

12.2 Disposals

(i) Significant disposals

Current year disposals

During the year the Group completed its strategic disposal plan for non-core assets announced in June 2020, and continued its

programme of strategic partnering generating developer gains. As a result, it recognised an exceptional gain on disposal of £576.5m

of its investment in SGN (discontinued), a combined exceptional loss of £120.8m on disposal of SSE E&P UK Limited (discontinued) and

other less material exceptional gains and losses on disposal (see note 7) and a non-exceptional gain on disposal of £67.1m. The disposals

below primarily comprise sales of stakes in non-operated investment assets, or the sale of a stake in early stage offshore windfarm

development, which aligns to the Group’s stated policy to realise value from these assets.

Sale of investment in SSE Contracting: On 30 June 2021, the Group completed the sale of its Contracting and Rail business to the

Aurelius Group for headline consideration of £22.5m and £5m of contingent consideration, based on earning targets within the business.

Due to working capital movements in the business subsequent to the transaction agreement, cash consideration received was £0.2m.

The Group recorded an additional exceptional loss on disposal of £18.9m on completion, in addition to the exceptional impairment loss

of £51.2m recognised during the year ended 31 March 2021.

Sale of stake in Dogger Bank C: On 10 February 2022, SSE completed the sale of a 10% stake in Dogger Bank C to Eni for consideration

of £70.0m and contingent consideration of up to £40m, resulting in a non-exceptional gain on disposal of £64.3m. The gain has been

recognised within the adjusted profit of the Group in line with the Group’s stated exceptional policy for gains on disposal of divestments

in early stage offshore windfarms (see note 3.2). After the sale the Group’s shareholding in Dogger Bank C is 40%.

Other disposals: On 19 August 2021 the Group received a dividend of £4.8m following the sale of Smarter Grid Solutions by the

Environmental Energies Fund Limited, resulting in a non-exceptional gain on sale of £2.8m.

Sale of discontinued operations

Sale of investment in SGN: On 2 August 2021, the Group announced it had agreed to sell its 33.3% investment in SGN to a consortium

comprising existing SGN shareholders Ontario Teachers’ Pension Plan Board and Brookfield Super-Core Infrastructure Partners for cash

consideration of £1,225m. The agreement was conditional on certain regulatory approvals and completed on 22 March 2022, with the

Group recognising an exceptional gain on disposal of £576.5m.

Sale of investment in Gas Production: On 14 October 2021, the Group completed the sale of its Gas Production business to Viaro

Energy through its subsidiary RockRose Energy Limited. In the period to 14 October 2021, the Gas Production business had an operating

profit (recognised in discontinued operations) of £101.4m. The Group recorded a combined loss on sale of £120.8m following on

completion of the disposal.

Prior year disposals

Sale of investment in Ferrybridge Multifuel: On 13 October 2020, the Group announced it had reached an agreement to dispose

of its 50% joint venture investment in Multifuel Energy Limited and Multifuel Energy 2 Limited (together ‘MEL’), to European Diversified

Infrastructure Fund III for headline consideration of £995m. The agreement was subject to antitrust approval by the European

Commission, which was granted on 7 January 2021 when the transaction completed. The Group recorded an exceptional gain

on disposal of £669.9m on completion.

254 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

12. Acquisitions, disposals and held-for-sale assets continued

12.2 Disposals continued

Sale of investment in Walney Windfarm: On 2 September 2020, the Group agreed to sell its subsidiary, SSE Renewables Walney Limited,

to Greencoat UK Wind Plc for consideration of £350m, resulting in an exceptional gain on sale of £188.7m. SSE Renewables Walney

Limited was the holding company of the Group’s non-operated 25.1% joint venture stake in Walney Offshore Windfarm. As essentially a

financial investment and as Walney Offshore Wind Farm Limited has been operational for several years, the disposal is not considered to

be aligned to the Group’s strategic objective of gaining value from divestment of stakes in offshore or international wind developments,

therefore the gain on disposal has been recognised as exceptional.

Sale of investment in Maple Smart Meter Assets: On 23 September 2020, the Group disposed of its 33% joint venture investment in

Maple Topco Limited, the smart meter services provider, for proceeds of £95.3m, recognising an exceptional gain on disposal of £70.4m.

Sale of stake in Doggerbank A&B Windfarms: On 4 December 2020, the Group announced it had agreed to sell a 10% stake in

Doggerbank A and Doggerbank B windfarms to Eni for consideration of £206.3m, including an interest adjustment of £3.8m, resulting

in a non-exceptional gain on disposal of £202.8m. The gain has been recognised within the adjusted profit of the Group in line with the

Group’s stated exceptional policy for gains on disposal of divestments in offshore windfarms (see note 3.2).

On the same date, Eni entered into an agreement with Equinor to purchase a further 10% stake in the development. Following these

transactions, SSE and Equinor each hold a 40% equity stake and Eni a 20% stake.

Sale of stake in Seagreen 1 Windfarm: On 3 June 2020, the Group disposed of a 51% stake in its wholly owned subsidiary, Seagreen

Holdco 1 Ltd (‘Seagreen 1’), to Total. The transaction was for initial cash proceeds of £70m, plus contingent consideration of up to £60m

dependent upon future criteria being met. The Group has assessed that control of the company was lost on that date, and that the

investment in Seagreen 1 should be accounted for as an equity accounted joint venture under the principles of IFRS 11 “Joint Arrangements”.

The Group acquired the joint venture investment at fair value under the principles of IFRS 10 “Consolidated Financial Statements”, resulting

in a total gain of £49.0m. Of that gain, £25.7m was recognised as exceptional, as it represented the fair value gain on acquisition of the joint

venture investment retained by the Group. The remaining £23.3m of the gain was included in underlying operations, in line with the Group’s

stated exceptional policy (see note 3.2).

Sale of stake in Slough Multifuel: On 2 April 2020, the Group disposed of a 50% stake in its wholly owned subsidiary, SSE Slough

Multifuel Ltd, to Copenhagen Infrastructure Partners. The transaction was for initial cash proceeds of £10m, plus contingent consideration

of up to £59.1m dependent upon future criteria being met. The Group has assessed that control of the company was lost on that date,

and that the investment in Slough Multifuel should be accounted for as an equity accounted joint venture under the principles of IFRS 11

“Joint Arrangements”. The Group acquired the joint venture investment at fair value under the principles of IFRS 10 “Consolidated Financial

Statements”, resulting in a total gain of £41.7m. Of that gain, £21.3m was recognised as exceptional, as it represented the fair value gain

on acquisition of the joint venture investment retained by the Group. The remaining £20.4m of the gain was included in underlying

operations, in line with the Group’s stated exceptional policy (see note 3.2).

255SSE plc Annual Report 2022

(ii) Disposal reconciliation

The following table summarises disposals of subsidiaries, businesses and assets during the financial year, including other assets and

investments disposed of as part of the normal course of business but before recognition of impairment charges in the year, which are

noted in the relevant respective notes to the financial statements.

2022

£m

2021

£m

Net assets disposed:

Property, plant and equipment 105.1 25.7

Intangible and biological assets 28.4 348.4

Investments and loans – joint ventures 662.5 490.3

Other investments 2.0 –

Deferred tax asset 14.8 0.6

Inventories 6.9 –

Trade and other receivables 28.5 29.2

Cash and cash equivalents – 172.8

Trade and other payables (33.2) (23.8)

Deferred tax liability – (0.2)

Derivative financial liabilities – (3.1)

Provisions (159.8) –

Loans and borrowings (0.8) (438.7)

Net assets 654.4 601.2

Proceeds of disposal:

Consideration 1,372.1 1,753.6

Fair value uplift – 47.0

Recognition of investment on loss of control – 51.5

Provision recognised on disposal (35.0) –

Costs of disposal (29.8) (23.0)

Net proceeds 1,307.3 1,829.1

Recycle of amounts recognised in hedge reserve (28.2) –

Gain on disposal 624.7 1,227.9

Presentation:

Continuing operations

Income statement exceptional (loss)/gain (18.9) 976.0

Income statement non-exceptional credit 67.1 251.9

48.2 1,227.9

Discontinuing operations

Income statement exceptional credit 576.5 –

SSE Group 624.7 1,227.9

2022

£m

2021

£m

Net proceeds of disposal 1,279.1 1,829.1

Fair value uplift – (47.0)

Recycle of amounts recognised in hedge reserve 28.2 –

Provision recognised on disposal 35.0 –

Recognition of investment on loss of control – (51.5)

Costs of disposal 29.8 23.0

Deferred consideration (5.2) (18.8)

Total cash proceeds 1,366.9 1,734.8

Less: cash disposed – (172.8)

Net cash proceeds 1,366.9 1,562.0

256 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

12. Acquisitions, disposals and held-for-sale assets continued

12.3 Held-for-sale assets and liabilities

There were no assets and liabilities classified as held for disposal at 31 March 2022. The assets held for disposal at 31 March 2021 the Group’s

Gas Production assets and liabilities, which were sold to Viaro Energy through its subsidiary RockRose Energy Limited on 14 October 2021

and the assets and liabilities of the Group’s Enterprise Contracting and Rail Business, which was sold to Aurelius Group on 30 June 2021.

Gas

Production

£m

SSE

Contracting

£m

2021

£m

Property, plant and equipment 167.5 – 167.5

Goodwill and other intangible assets 49.6 – 49.6

Deferred tax asset 14.7 0.2 14.9

Inventories 2.6 2.1 4.7

Trade and other receivables 7.7 94.7 102.4

Total assets 242.1 97.0 339.1

Trade and other payables (9.1) (46.3) (55.4)

Current tax liabilities – (0.1) (0.1)

Provisions (149.3) (46.5) (195.8)

Loans and other borrowings – (2.2) (2.2)

Total liabilities (158.4) (95.1) (253.5)

Net assets/(liabilities) held for sale 83.7 1.9 85.6

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

257SSE plc Annual Report 2022

12.4 Discontinued operations

The discontinued operations during 31 March 2022 represent the Group’s investment in SGN, which was disposed on 22 March 2022 and

the Group’s investment in Gas Production assets, which was sold on 14 October 2021. In the prior year comparative, the discontinued

operations included Gas Production, and the Group’s Enterprise Contracting and Rail Business, which was sold on 30 June 2021

(seenote 12.2). The profit/(loss) of the discontinued operation is as follows:

2022 2021

Before

exceptional

items and

certain

re-

measurements

£m

Exceptional

items and

certain

re-

measurements

£m

Total

£m

Before

exceptional

items and

certain

re-

measurements

(restated*)

£m

Exceptional

items and

certain

re-

measurements

(restated*)

£m

Total

(restated*)

£m

Revenue 142.0 – 142.0 105.0 – 105.0

Cost of sales (38.9) – (38.9) (68.9) – (68.9)

Gross profit 103.1 – 103.1 36.1 – 36.1

Operating costs (1.7) (120.8) (122.5) (3.1) – (3.1)

Operating profit/(loss) before joint

ventures 101.4 (120.8) (19.4) 33.0 – 33.0

Joint ventures

Share of operating profit 21.0 – 21.0 173.0 – 173.0

Share of interest (11.1) – (11.1) (64.1) – (64.1)

Share of movement on derivatives – (4.6) (4.6) – 1.9 1.9

Share of tax (1.7) (84.7) (86.4) (21.9) (0.3) (22.2)

Share of profit/(loss) on joint ventures 8.2 (89.3) (81.1) 87.0 1.6 88.6

Operating profit/(loss) 109.6 (210.1) (100.5) 120.0 1.6 121.6

Finance income 6.8 – 6.8 9.8 – 9.8

Finance costs (0.1) – (0.1) (2.3) – (2.3)

Profit/(loss) for the year 116.3 (210.1) (93.8) 127.5 1.6 129.1

Profit on disposal of discontinued

operations, after tax – 576.5 576.5 – – –

Profit/(loss) from discontinued

operations, net of tax 116.3 366.4 482.7 127.5 1.6 129.1

* The comparatives have been restated. See note 1.2.

Other comprehensive income from discontinued operations

2022

£m

2021

£m

Items that will be reclassified subsequently to profit or loss:

Share of other comprehensive gain/(loss) of joint ventures and associates, net of taxation 0.5 4.7

Items that will not be reclassified to profit or loss:

Share of other comprehensive (loss)/income of joint ventures, net of taxation (1.7) (23.3)

Other comprehensive loss from discontinued operations (1.2) (18.6)

Cashflows from discontinued operations

2022

£m

2021

£m

Cashflows from operating activities 11.6 26.8

Cashflows from investing activities (11.6) (26.8)

Net (decrease)/increase in cash and cash equivalents in discontinued operations – –

258 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

13. Intangible assets

Goodwill

£m

Allowances &

certificates

£m

Development

assets

£m

Other

intangibles

£m

Software

assets

£m

Total

£m

Cost:

At 31 March 2020 533.8 730.7 580.7 114.8 782.8 2,742.8

Additions – 509.0 116.1 2.3 73.0 700.4

Transfer to property plant and equipment

(note 14) – – (43.1) – – (43.1)

Disposals/utilised (5.9) (637.3) (348.7) – (7.7) (999.6)

Transferred to held for sale (note 12) (1.0) – – (1.2) (2.2) (4.4)

Exchange adjustments (4.8) – (1.5) – (1.6) (7.9)

At 31 March 2021 522.1 602.4 303.5 115.9 844.3 2,388.2

Additions – 544.5 80.5 – 97.7 722.7

Acquired through business combinations 176.7 – 21.1 – – 197.8

Transfer (to)/from property plant and

equipment (note 14) – – (40.4) – – (40.4)

Disposals/utilised – (459.8) (9.8) – (29.8) (499.4)

Exchange adjustments 6.1 (0.3) (0.5) – – 5.3

At 31 March 2022 704.9 686.8 354.4 115.9 912.2 2,774.2

Aggregate amortisation and impairment:

At 31 March 2020 (192.9) (227.5) (154.0) (111.1) (452.7) (1,138.2)

Charge for the year – – – (2.7) (30.2) (32.9)

Exceptional impairment charges (note 7) – – – – (5.2) (5.2)

Non-exceptional impairment charge (i) – – (4.7) – – (4.7)

Disposals/utilised – – – – 7.7 7.7

Transferred to held for sale (note 12) – – – 0.7 0.5 1.2

Exchange adjustments – – 0.3 – (0.2) 0.1

At 31 March 2021 (192.9) (227.5) (158.4) (113.1) (480.1) (1,172.0)

Charge for the year – – – (1.5) (43.9) (45.4)

Non-exceptional impairment charge (i) – – 5.1 – 26.7 31.8

Exchange adjustments – – – – (1.5) (1.5)

At 31 March 2022 (192.9) (227.5) (153.3) 114.6 (498.8) (1,187.1)

Carrying amount:

At 31 March 2022 512.0 459.3 201.1 1.3 413.4 1,587.1

At 31 March 2021 329.2 374.9 145.1 2.8 364.2 1,216.2

At 1 April 2020 340.9 503.2 426.7 3.7 330.1 1,604.6

(i) The non-exceptional impairments in both years relate to assets where future development became uncertain or untenable in the year. The impairment of these

items does not meet the Group’s definition of an exceptional item, therefore they are included in the adjusted and reported results of the Group.

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

259SSE plc Annual Report 2022

Intangible assets have been analysed as current and non-current as follows:

2022

£m

2021

£m

Current 459.3 374.9

Non-current 1,127.8 841.3

1,587.1 1,216.2

(i) Goodwill

At inception, goodwill arising from business combinations is allocated to cash-generating units (CGUs) for impairment testing purposes.

Certain goodwill valuations have changed in the current year following retranslation. Commentary on the impairment testing of the

related CGUs, with the exception of two historic balances totalling £8.2m, is included in note 15.

A summary of the goodwill allocated to CGUs and the Group’s operating segments is presented below:

Cash-generating unit Operating segment

2022

£m

2021

£m

Onshore windfarms SSE Renewables 71.3 73.7

Offshore windfarms SSE Renewables 214.9 214.9

SSE Pacifico

SSE Renewables 185.2 –

Energy Solutions

GB Business Energy & Distributed Energy 32.4 32.4

Ireland Supply

SSE Airtricity 8.2 8.2

512.0 329.2

1 Relates to the acquisition of an 80% equity interest in an offshore wind development platform from Pacifico Energy.

2 Energy Solutions includes goodwill balances arising from the historic acquisitions of The Energy Solutions Group Limited (TESGL) of £31.7m (2021: £31.7m and a

further £0.7m (2021: £0.7m) in relation to the acquisition of Fusion Heating Limited. The amount of goodwill associated with the historic businesses is not significant

in context of the aggregate carrying value of the business units or the aggregate value of goodwill held by the Group.

3 The value associated with the Ireland supply goodwill represents the difference between the fair value attributed to the Northern Ireland based Phoenix Energy

business acquired in 2012 and the book value of those assets. No impairment has been recognised during the year on this balance.

(ii) Allowances and certificates

Allowances and Certificates consist of purchased carbon emissions allowances and generated or purchased renewable obligations

certificates (ROCs). These allowances and certificates will be utilised in settlement of environmental obligations incurred by the Group’s

Thermal and GB Business Energy supply business and are therefore distinct from allowances and certificates in excess of the Group’s

environmental obligations which are recorded within inventories.

(iii) Development assets

Development costs relate to the design, construction and testing of Thermal and Renewable generation sites, which the Group believes

will generate probable future economic benefits. Costs capitalised as development intangibles include options over land rights, planning

application costs, environmental impact studies and other costs incurred in bringing windfarms and other development projects to the

consented stage. These may be costs incurred directly or at a cost as part of the fair value attribution on acquisition.

At the point the development reaches the consent stage and is approved for construction, the carrying value is transferred to property,

plant and equipment (note 14). At the point a project is no longer expected to reach the consented stage, the carrying amount of the

project is impaired.

(iv) Other intangible assets

Included within other intangible assets are brands, customer lists and contracts.

No exceptional or non-exceptional impairment charges have been recognised in the year (2021: £nil).

(v) Software assets

Software assets include application software license fees, software development work, software upgrades and purchased PC

softwarepackages.

Exceptional charges of £5.2m were recognised in the prior year in relation to the disposal of SSE Energy Services (recognised within

continuing operations) (note 7).

260 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

14. Property, plant and equipment

Thermal

power

generation

assets (i)

£m

Renewable

power

generation

assets (i)

£m

Distribution

network

assets

£m

Transmission

network

assets

£m

Land and

buildings

£m

Assets under

construction

£m

Other

assets

£m

Total

£m

Cost:

At 31 March 2020 2,738.0 5,743.5 8,687.3 4,143.5 515.1 550.0 1,221.4 23,598.8

Additions 3.6 – 60.5 – 14.7 968.7 29.1 1,076.6

Adjustment to decommissioning asset 2.2 (9.5) – – – – (5.3) (12.6)

Transfer from (to)/from intangible assets

(note 13) – – – – 1.9 41.2 – 43.1

Transfer from assets under construction 36.9 25.5 329.8 415.5 8.8 (870.2) 53.7 –

Disposals (ii) (0.6) – (1.9) (2.6) (9.3) (22.8) (21.2) (58.4)

Transfer to assets held for sale – – – – (2.3) – (0.7) (3.0)

Exchange rate adjustments (21.8) (37.5) – – (1.0) (1.4) (2.2) (63.9)

At 31 March 2021 2,758.3 5,722.0 9,075.7 4,556.4 527.9 665.5 1,274.8 24,580.6

Additions – – 76.3 3.6 41.1 1,220.2 44.2 1,385.4

Adjustment to decommissioning asset 58.7 88.5 – – – – – 147. 2

Transfer from intangible assets (note 13);

(iii) – – – – – 40.4 – 40.4

Transfer from Assets Under Construction 21.8 75.8 347.6 550.5 (0.9) (1,058.6) 63.8 –

Disposals (ii) (17.8) (18.5) – – (13.8) (7.8) (87.9) (145.8)

Exchange rate adjustments (3.6) (8.1) – – (0.2) (0.2) (0.6) (12.7)

At 31 March 2022 2,817.4 5,859.7 9,499.6 5,110.5 554.1 859.5 1,294.3 25,995.1

Depreciation:

At 31 March 2020 (2,184.9) (2,624.2) (4,051.4) (600.3) (168.3) (20.2) (1,134.8) (10,784.1)

Charge for the year (36.5) (171.3) (148.7) (81.1) (27.2) – (58.5) (523.3)

Impairments charges (note 7); (iv) (58.6) – – – (15.1) 1.9 – (71.8)

Transfers in the year – – (0.1) – (0.1) – 0.2 –

Disposals (ii) – – 0.5 0.1 1.5 – 20.5 22.6

Transfer to assets held for sale – – – – 0.5 – 0.3 0.8

Exchange rate adjustments 21.5 7.3 – – – – 0.7 29.5

At 31 March 2021 (2,258.5) (2,788.2) (4,199.7) (681.3) (208.7) (18.3) (1,171.6) (11,326.3)

Charge for the year (65.3) (158.3) (156.4) (90.5) (17.2) – (57.7) (545.4)

Impairment reversals (note 7); (iv) 331.6 – – – – – 97.9 429.5

Non-exceptional impairment charges – – (20.7) – – 1.0 – (19.7)

Disposals (ii) – 18.7 – – 1.9 6.5 49.6 76.7

Exchange rate adjustments (0.2) 0.2 – – – – 8.8 8.8

At 31 March 2022 (1,992.4) (2,927.6) (4,376.8) (771.8) (224.0) (10.8) (1,073.0) (11,376.4)

Net book value

At 31 March 2022 825.0 2,932.1 5,122.8 4,338.7 330.1 848.7 221.3 14,618.7

At 31 March 2021 499.8 2,933.8 4,876.0 3,875.1 319.2 647.2 103.2 13,254.3

At 1 April 2020 553.1 3,119.3 4,635.9 3,543.2 346.8 529.8 86.6 12,814.7

(i) Thermal and Renewable generation assets include generation plant and machinery and related land and buildings. The net book value of power generation assets,

renewables and thermal includes decommissioning costs with a net book value of £183.5m and £255.0m (2021: £124.6m and £80.3m) respectively.

(ii) Assets disposed in 2021 included £24.4m in respect of the Group’s assets relating to the disposal of Slough Multifuel.

(iii) Represents the carrying value of development assets transferred from intangible assets (note 13) which have reached the consent stage and have been approved

for construction.

(iv) Impairment (reversals)/charges relate to exceptional impairment reversals of £331.6m in relation to the Group’s GB CCGT power stations and the Group’s Great

Island CCGT plant and £97.3m relating to the Group’s gas storage operations at Atwick and Aldbrough (see note 7) and non-exceptional impairments of £1.0m.

(2021: exceptional impairments of £71.3m and non-exceptional impairments of £0.5m).

The presentation of this property, plant and equipment note has been restated from that included in the financial statements to 31 March

2021 to more meaningfully represent the Group’s primary categories of assets. The disclosure better aligns assets to the Group’s major

business units, reflecting asset management and ownership and grouping common assets into appropriate asset classes.

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

261SSE plc Annual Report 2022

Included within property, plant and equipment are the following right of use assets for leased assets:

Thermal power

generation

assets

£m

Land and

buildings

£m

Distribution

network assets

£m

Metering assets

and other

equipment

£m

Total

£m

Cost:

At 31 March 2020 369.6 165.1 12.2 93.2 640.1

Additions – 15.6 – 29.8 45.4

Disposals – (8.0) – (4.2) (12.2)

Exchange rate adjustments – (1.5) – (0.4) (1.9)

At 31 March 2021 369.6 171.2 12.2 118.4 671.4

Additions – 40.6 – 45.1 85.7

Disposals – (8.7) – (67.8) (76.5)

At 31 March 2022 369.6 203.1 12.2 95.7 680.6

Depreciation

At 31 March 2020 (260.4) (11.7) (0.4) (27.1) (299.6)

Charge for the year (12.1) (11.7) (2.2) (26.3) (52.3)

Disposals – 1.5 – 4.0 5.5

Exchange rate adjustments – 0.3 – 0.3 0.6

At 31 March 2021 (272.5) (21.6) (2.6) (49.1) (345.8)

Charge for the year (15.1) (10.6) (2.2) (18.9) (46.8)

Disposals – 1.1 – 31.7 32.8

Impairment reversal 54.0 – – – 54.0

At 31 March 2022 (233.6) (31.1) (4.8) (36.3) (305.8)

Net book value

At 31 March 2022 136.0 172.0 7.4 59.4 374.8

At 31 March 2021 97.1 149.6 9.6 69.3 325.6

At 1 April 2020 109.2 153.4 11.8 66.1 340.5

15. Impairment testing

Goodwill and intangibles that are not amortised are reviewed at least annually for impairment. PPE, investments and other intangibles are

assessed annually for impairment (or impairment reversals) triggers.

The Group’s accounting policies and methodologies for impairment testing are described at Accompanying Information sections A1.2 .

The key operating and valuation assumptions, specific considerations and outcome of tests for all impairment reviews are noted in the

following sections. The discount rates used are pre-tax real, except where noted, and reflect specific risks attributable to the relevant

assets subject to impairment review. The discount rates applied in both 2022 and 2021 remain consistent across all CGUs, except where

noted, reflecting the Group’s view of cost of capital and risk. The recoverable amounts derived from the VIU or FVLCS calculations are

compared to the carrying amount of each asset or CGU to determine whether an impairment charge requires to be recognised. The

reviews carried out for the 2022 financial statements were carried out in the fourth quarter of the year, which is consistent with previous

reviews. Note that the actual outcomes may differ from the assumptions included in the assessments at the balance sheet date.

262 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

15. Impairment testing continued

15.1 Goodwill impairment reviews – CGUs testing

The recoverable amounts of the Onshore Windfarm, the Offshore Windfarm and Enterprise Energy Solutions CGUs are determined by

reference to value-in-use (‘VIU’) calculations. The VIU calculations use, as a starting point, pre-tax cash flow projections based on the

Group’s five year Corporate Model as approved by the Board. The Group’s Corporate Model is based both on past experience and

reflects the Group’s forward view of markets, prices, risks and its strategic objectives. Commodity prices used are based on observable

market data and, where this is not available, on internal estimates.

Assets/CGUs

Cash flow period

assumption Operating and other valuation assumptions Commentary and impairment conclusions

Onshore

Windfarm

Period to end

of life of portfolio

assets

Onshore

The VIU assessment is used to test the carrying

value of £71.3m of goodwill related to the

Group’s onshore windfarms for impairment. 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.

This includes over 50 operating assets in both

the UK and Republic of Ireland.

Cash inflows for the CGUs are based on the

expected average annual generation GWh 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 ROCs or REFIT. Cash outflows are

based on planned and expected maintenance

profiles and other capital or replacement costs.

The Onshore Windfarm CGU includes cashflows

for operational assets only, being over 50

individual windfarms across UK and Republic of

Ireland, given the risk and uncertainty associated

with projects in the development stage.

The cash flow projections are based on UK

power prices between £64 - £116 per MWh over

the next three years and have been discounted

applying a pre-tax real discount rate between

5.1% and 6.0% (2021: between 5.1% and 5.6%)

based on technology and market risks.

Impairment conclusion – Onshore

The recoverable amount of the Onshore

windfarm CGU continues to significantly exceed

the carrying value of the CGU based on the

impairment test, therefore no impairment has

been recognised.

Sensitivity analysis – Onshore

The principal assumptions impacting the

valuation model of the onshore windfarm

CGU are discount rate, generation volume

and electricity price.

While cash flow projections are subject to

inherent uncertainty, a 10% power price decrease

was modelled, which indicated significant

headroom on the carrying value of the assets. A

0.5% increase in the pre-tax real discount rate to

between 5.6% - 6.5% also indicated significant

headroom on the carrying value of the assets.

TCFD related sensitivity analysis – Onshore

A significant increase in renewable generation

capacity in the Group’s core markets could

potentially 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 onshore 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

10% reduction in power price, there remained

significant headroom on the carrying value in

the Group’s onshore 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 onshore wind

generation assets (although noting that this

would likely lead to capacity constraints and

hence higher prices). Despite a 15% reduction in

modelled achievable volume, there remained

significant headroom on the carrying value in

the Group’s onshore wind generation assets.

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

263SSE plc Annual Report 2022

Assets/CGUs

Cash flow period

assumption Operating and other valuation assumptions Commentary and impairment conclusions

Offshore

Windfarms

Period to end

of life of portfolio

assets

Offshore

The VIU assessment is used to test the carrying

value of £214.9m of goodwill related to the

Group’s offshore windfarms for impairment. 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 Offshore Windfarm CGU includes cashflows

for operational assets only, being Beatrice and

Greater Gabbard wind farms, given the risk and

uncertainty associated with projects in the

development stage. Seagreen and Doggerbank

are currently under construction and have been

excluded from the analysis.

Cash inflows for the CGUs are based on the

expected average annual generation GWh

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 government’s continuing

support for existing qualifying wind assets through

CFD subsidies. Cash outflows are based on

planned and expected maintenance profiles

and other capital or replacement costs.

The cash flow projections are based on UK power

prices between £65 - £117 per MWh over the next

three years and have been discounted applying

a pre-tax real discount rate of 6.0% (2021: 5.6%)

based on technology and market risks.

Impairment conclusion – Offshore

The recoverable amount of the Onshore

windfarm CGU significantly exceeds the carrying

value of the CGU based on the impairment test,

therefore no impairment has been recognised.

Sensitivity analysis – Offshore

The principal assumptions impacting the

valuation model of the onshore windfarm

CGU are discount rate, generation volume

and electricity price.

While cash flow projections are subject

to inherent uncertainty, a 10% power price

decrease was modelled, which indicated

significant headroom on the carrying value of

the assets. A 0.5% increase in the pre-tax real

discount rate to 6.5% also indicated significant

headroom on the carrying value of the assets.

TCFD related sensitivity analysis – Offshore

A significant increase in renewable generation

capacity in the Group’s core markets could

potentially 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 offshore 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

10% reduction in power price, there remained

significant headroom on the carrying value in

the Group’s offshore 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 offshore wind

generation assets (although noting that this

would likely lead to capacity constraints and

hence higher prices). Despite a 15% reduction

in modelled achievable volume, there remained

significant headroom on the carrying value in

the Group’s offshore wind generation assets.

Enterprise Energy

Solutions

5 years The Group has capitalised goodwill of £31.7m in

relation to the acquisition of the Energy Solutions

Group in 2016. The business designs, installs and

optimises building management technologies

which deliver efficient operating environments

for its customers.

The VIU of the business CGU has been based

on a 5.6% (2021: 5.6%) pre-tax real discount rate,

which is consistent with the prior year.

Conclusion

At 31 March 2022, the impairment review

indicates headroom on the carrying value.

A decrease in forecast cashflows of 20%

would result in a £6.0m impairment. An increase

in the discount rate of 4% would result in an

impairment of £12.4m.

During the year SSE completed the acquisition of SSE Pacifico, which has resulted in the recognition on acquisition of £176.7m of

goodwill in the year. Management utilised the cash flow models produced at the time of the acquisition, to test for impairment at the

year end and identified no impairment.

264 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

15. Impairment testing continued

15.2 PP&E, other intangibles and investment impairment reviews – asset testing

Where an indicator of impairment exists, the recoverable amounts of the Group’s PP&E, other intangible assets and interests in joint

ventures and associates are determined by reference to VIU or, where appropriate, fair value less costs to sell calculations. The calculations

use, as their starting point, pre-tax cash flow projections based on the Group’s five year Corporate Model as approved by the Board. The

Group’s Corporate Model is based on past experience and reflects the Group’s forward view of markets, prices, risks and its strategic

objectives. Commodity prices used are based on observable market data and, where this is not available, on internal estimates. Fair value

less costs to sell valuations are derived from market analysis for similar transactions, adjusted to specific circumstances of the Group’s

investment to reflect the amount the Group believes will be recoverable in a sale transaction.

Changes from prior year

The assets identified for impairment reviews in the prior year (being GB CCGTs, the Great Island CCGTs and the Group’s discontinued Gas

Production assets) remained subject to impairment testing at 31 March 2022, with the exception of the now disposed Gas Production

assets. In addition to these assets, the Group’s Gas Storage assets displayed indicators of impairment reversal following improved financial

performance during the year. This improved financial performance was mainly due to global gas price volatility during the year, with the

asset providing opportunities for the Group to trade within this volatility. Finally, the Group’s 50% joint venture investment in Neos

Networks Limited displayed indicators of impairment following the loss of a major contract, subsequent to increases in the Group’s

investment during the year.

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

265SSE plc Annual Report 2022

Assets

Cash flow period

assumption Operating and other valuation assumptions Commentary and impairment conclusions

GB CCGTs

(Keadby,

Medway,

Peterhead and

Marchwood (PPA

Right of use

lease asset)

power stations

Period to

end of life

Modelling methodology and assumptions

The VIU of the Group’s GB combined cycle gas

turbine (‘CCGT’) power stations were based on

pre-tax discounted cash flows expected to be

generated by each plant, based on management’s

view of operating prospects and operational

flexibility within the GB wholesale market,

including capacity market clearing prices. Cash

flows are subject to a pre-tax real discount rate

between 9.2% and 21.2% (2021: between 8.9%

and 19.9%).

Changes from prior year

Certain assets within the Group’s GB CCGT fleet

are nearing the end of their operational life and

are therefore more sensitive to fluctuations in

market assumptions.

During the year, increases in gas and carbon

prices, exacerbated by Russia’s invasion of

Ukraine in February 2022, have resulted in an

increase in UK power prices. The UK market

has also experienced periods where available

generation capacity above demand has been

reduced, which has also resulted in increased

power prices. As a result the observable spark

margins assumed for the GB CCGT assets has

increased and there has been strong operational

performance of the assets. These factors were

considered an indicator of impairment reversal

at 31 March 2022.

The Group recorded exceptional impairment

reversals totalling £175.8m at 30 September

2021 (Peterhead (£25.4m); Keadby (£46.7m);

Medway (£49.7m) and Marchwood (£54.0m))

on its GB CCGT fleet based on observable

power prices at that date. In the second half

of the financial year, observable power prices

have increased further, resulting in further

impairment reversals in the second half of

the year. The conclusion presented opposite

represents the total impairment reversals

recognised for the year.

Conclusion

At 31 March 2022 an impairment reversal of

£293.8m, has been recognised across the GB

CCGT assets.

The impairment assessment returned individually

exceptional impairment reversals to Peterhead

(£91.4m), Marchwood (£54.0m), Keadby (£65.3m)

and Medway (£83.1m). Following this assessment,

all historic impairments on these assets have now

been reversed.

The closing carrying values, subsequent to the

impairment reversals, are: Peterhead (£133.1m);

Marchwood (£142.4m); Keadby (£72.0m); and

Medway (£97.7m).

The Group has assessed that the recoverable

values of these assets are: Peterhead (£246.5m);

Marchwood (£437.8m); Keadby (£250.5m); and

Medway (£226.3m).

As a result of securing additional supply contracts,

the useful economic life of Keadby CCGT has

been extended by 4 years to 2028 and Medway by

1 year to 2026. Both of these life extensions have

been considered within the impairment testing

process. Based on the reinstated asset values,

this will result in a £32.2m decrease to FY22/23

depreciation charge.

Sensitivity analysis

A 20% decrease in gross margin would still result in

full impairment reversal for each asset. A sensitivity on

non-contracted capacity mechanism prices has not

been performed as the assets subject to impairment

testing are contracted into future periods.

TCFD related sensitivity analysis – GB CCGTs

The future introduction of legislation restricting

power generation from unabated gas fired power

stations beyond 2030 has been identified as a

potential risk the Group could be exposed to as the

UK transitions to a net zero economy. However, this

has not been treated as an indicator of impairment

at 31 March 2022, as legislation has not been

introduced or enacted by the balance sheet date.

Most of the Group’s GB CCGTs are nearing the

end of their economic life and are projected to

cease operations before 2030. Of the Group’s GB

CCGTs, only Keadby 2 is projected to operate

beyond this date. Keadby 2 is not displaying

indicators of impairment and so has not been

included in the impairment review above. If

legislation was introduced requiring the closure

of Keadby 2 by 2030, it would result in no

impairment at 31 March 2022.

266 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Assets

Cash flow period

assumption Operating and other valuation assumptions Commentary and impairment conclusions

Great Island

CCGT

Period to

end oflife

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 11.0%

(2021: 10.8%) reflecting the specific risks in the

Irish market.

The Group recorded an exceptional impairment

reversal of £5.8m at 30 September 2021 on its

Great Island CCGT based on observable power

prices at that date. In the second half of the

financial year, observable power prices have

increased further, resulting in a further

impairment reversal in the second half of the

year. The conclusion presented opposite

represents the total impairment reversal

recognised for the year.

Conclusion

The VIU assessment performed on the asset

indicated an exceptional impairment reversal

of £37.5m, which has been recognised at 31 March

2022.

The carrying value of the asset following the

impairment reversal is £259.8m.

Sensitivity analysis

A 0.5% increase in the discount rate would decrease

the impairment reversal to £30.7m and a 0.5%

decrease in the discount rate would increase the

impairment reversal to £44.9m.

A 20% decrease in gross margin would result in an

impairment of £53.0m, and a 20% increase in gross

margin would result in an impairment reversal of

£54.2m, which would represent a full reversal of

historic impairments.

A €10/KW decrease in non-contracted capacity

market price would decrease the impairment

reversal to £20.2m and a €10/KW increase would

increase the impairment reversal to £54.2m,

which would represent a full reversal of historic

impairments.

TCFD related sensitivity analysis – GB CCGTs

The future introduction of legislation restricting

power generation from unabated gas fired power

stations beyond 2030 has been identified as

a potential risk the Group could be exposed

to as Ireland transitions to a net zero economy.

However, this has not been treated as an indicator

of impairment at 31 March 2022, as legislation has

not been introduced or enacted by the balance

sheet date.

Great Island is projected to operate beyond

this date, and so while legislation has not been

introduced requiring the shortening of the

economic life to this date, the Group has performed

a sensitivity analysis to the impairment test noted

above. If legislation was introduced requiring the

closure of Great Island by 2030, it would result in

an impairment of £41.5m at 31 March 2022.

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

15. Impairment testing continued

15.2 PP&E, other intangibles and investment impairment reviews – asset testing continued

267SSE plc Annual Report 2022

Assets

Cash flow period

assumption Operating and other valuation assumptions Commentary and impairment conclusions

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 15.3% reflecting risks

specific to the assets.

The key assumptions applied in the valuation of

the assets are gas price volatility and the mean

reversion rate (‘MRR’). The gas price volatility

assumption reflects management’s view of price

fluctuations between periods where the Group

can purchase gas at a low price, store it and sell

during periods of peak prices. The assumption is

based off of market observed volatility in the last

3 years and management’s view on projected

volatility in future periods. MRR represents the

time taken for the market to return to average

after a period of increase or decline. The MRR

combined with the volatility rate derives

management’s fair value of the assets.

Conclusion

The VIU assessment performed on the assets

indicated an exceptional impairment reversal of

£97.3m in total, which has been recognised at

31 March 2022.

The impairment assessment returned exceptional

impairment reversals to Atwick (£70.2m) and

Aldbrough (£27.1m). While an impairment reversal

below £30m would not normally be treated as

exceptional, it constitutes the reversal of an

impairment that was previously treated as

exceptional. The Group’s policy therefore is to also

treat the reversal of the impairment as exceptional.

Following the impairment reversals the carrying

value of Atwick is £70.2m and the carrying value

of Aldbrough is £49.1m. Both of these carrying

values represent the net book value of the storage

assets and exclude the carrying value of cushion

gas volumes.

Sensitivity analysis

A sensitivity performed with a high volatility

assumption would result in an impairment reversal

of £72.9m to Atwick and £59.5m to Aldbrough.

The Atwick reversal would represent a full reversal

of historic impairments.

A low volatility assumption would result in an

impairment reversal of £52.0m in Atwick and

£0.6m in Aldbrough.

A high sensitivity of the MRR assumption

(represents an increase in the rate by 1.0)

would result in an impairment reversal of £72.9m

to Atwick and £58.6m to Aldbrough. The Atwick

reversal would represent a full reversal of historic

impairments.

A low sensitivity of the MRR assumption

(represents a decrease in the rate by 1.0) would

result in an impairment reversal of £60.7m in

Atwick and £9.3m in Aldbrough.

268 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Assets

Cash flow period

assumption Operating and other valuation assumptions Commentary and impairment conclusions

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 £154.4m to headroom

of £37.0m.

The Group has assessed that within this range

of valuations, a point valuation resulting in an

impairment of £106.9m 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 £195.3m.

Sensitivity analysis

Sensitivity analysis was performed in relation to

the EBITDA and the multiple applied in deriving the

valuation. A 10% increase in the EBITDA assumption

would result in an impairment of £87.4m, whereas

a 10% decrease in the EBITDA assumption would

result in an impairment of £126.4m.

A 5% decrease to the multiple assumption would

result in an impairment of £116.7m, whereas a 5%

increase to the multiple assumption would result

in an impairment of £97.2m.

16. Investments

16.1 Joint Ventures and associates

Share of net assets/cost

2022 2021 (restated*)

Equity

£m

Loans

£m

Total

£m

Equity

£m

Loans

£m

Total

£m

At 1 April 1,643.5 554.3 2,197.8 1,849.4 847.5 2,696.9

Additions 243.5 449.0 692.5 9.0 179.9 188.9

Recognition of investment on loss of

control (i) – – – 88.5 10.0 98.5

Repayment of shareholder loans – (147.6) (147.6) – (236.7) (236.7)

Dividends received (177.0) – (177.0) (191.1) – (191.1)

Share of profit/(loss) after tax (ii) –

continuing operations 110.7 – 110.7 45.5 – 45.5

Share of profit/(loss) after tax (ii) –

discontinued operations (81.1) – (81.1) 88.6 – 88.6

Share of other reserves adjustments 152.8 – 152.8 1.5 – 1.5

Disposals (545.7) (118.8) (664.5) (226.1) (264.6) (490.7)

Transfer – Loans to Equity – – – (18.4) 18.4 –

Transfers – Other Investments – – – (2.0) – (2.0)

Impairments (106.9) – (106.9) (0.1) – (0.1)

Exchange rate adjustments (0.3) – (0.3) (1.3) (0.2) (1.5)

At 31 March 1,239.5 736.9 1,976.4 1,643.5 554.3 2,197.8

* The comparatives have been restated. See note 1.2.

(i) In the prior year the Group assessed that the equity stakes retained following the disposals of its wholly owned subsidiaries, Seagreen Holdco 1 Ltd and SSE Slough

Multifuel Ltd were accounted for as equity accounted joint ventures. In the table above an equity investment of £88.5m (including a fair value uplift of £47.0m on

acquisition of the joint venture (see note 12.2) and loans of £10.0m were recognised on deconsolidation.

(ii) Of the £110.7m (2021: £45.5m) share of profits from continuing operations, only £109.8m (2021: £43.4m) is recognised through the income statement. The £0.9m

(2021: £2.1m) difference relates to profits earned from SSE Group companies where the costs have been capitalised. This profit has been eliminated on consolidation.

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

15. Impairment testing continued

15.2 PP&E, other intangibles and investment impairment reviews – asset testing continued

269SSE plc Annual Report 2022

16.2 Additions and disposals of equity in the current year

During the current and prior year the Group progressed with its plan to dispose of equity stakes in non-core or non-operated assets,

including equity stakes in investments. Further detail on the Group’s disposals in the year is provided in note 12.2 and is summarisedbelow.

Additions in the year arising on loss on control

There were no significant additions of equity in the current year.

Disposals of equity in the year

Sale of stake in Dogger Bank C: On 10 February 2022, SSE completed the sale of a 10% stake in Dogger Bank C to Eni for consideration

of £70.0m and contingent consideration of up to £40.0m, resulting in a non-exceptional gain on disposal of £64.3m. The gain has been

recognised within the adjusted profit of the Group in line with the Group’s stated exceptional policy for gains on disposal of divestments

in offshore windfarms (see note 3.2). After the sale the Group’s shareholding in Dogger Bank C is 40%.

Sale of investment in SGN: On 2 August 2021, the Group announced it had agreed to sell its 33.3% investment in SGN to a consortium

comprising existing SGN shareholders Ontario Teachers’ Pension Plan Board and Brookfield Super-Core Infrastructure Partners for cash

consideration of £1,225m. The agreement was conditional on certain regulatory approvals and completed on 22 March 2022, with the

Group recognising an exceptional gain on disposal of £576.5m.

16.3 Acquisitions and disposals of equity in the previous year

Additions in the previous year arising on loss on control

Sale of Slough Multifuel subsidiary and acquisition of joint venture investment: On 2 April 2020, the Group disposed of a 50% stake in

its wholly owned subsidiary, SSE Slough Multifuel Ltd, to Copenhagen Infrastructure Partners (see note 12.2). The Group assessed that

control of the company was lost on that date, and that the remaining 50% investment in Slough Multifuel should be accounted for as an

equity accounted joint venture under the principles of IFRS 11 “Joint Arrangements”. The Group acquired the joint venture investment at

fair value of £31.3m under the principles of IFRS 10 “Consolidated Financial Statements” on that date.

Sale of Seagreen 1 subsidiary and acquisition of investment: On 3 June 2020, the Group disposed of a 51% stake in its wholly owned

subsidiary, Seagreen Holdco 1 Ltd (‘Seagreen 1’), to Total (see note 12.2). The Group assessed that control of the company was lost on

that date, and that the remaining 49% investment in Seagreen 1 should be accounted for as an equity accounted joint venture under the

principles of IFRS 11 “Joint Arrangements”. The Group acquired the joint venture investment at fair value of £67.2m under the principles

of IFRS 10 “Consolidated Financial Statements” on that date.

Disposals of equity in the previous year

Sale of investment in Ferrybridge Multifuel: On 13 October 2020, the Group announced it had reached an agreement to dispose

of its 50% joint venture investment in Multifuel Energy Limited and Multifuel Energy 2 Limited (together ‘MEL’), to European Diversified

Infrastructure Fund III for headline consideration of £995m. The agreement was subject to antitrust approval by the European

Commission, which was granted on 7 January 2021 when the transaction completed. The Group recorded an exceptional gain on

disposal of £669.9m on completion.

Sale of investment in Walney Windfarm: On 2 September 2020, the Group agreed to sell its subsidiary, SSE Renewables Walney Limited,

to Greencoat UK Wind Plc for consideration of £350m, resulting in an exceptional gain on sale of £188.7m. SSE Renewables Walney

Limited was the holding company of the Group’s non-operated 25.1% joint venture stake in Walney Offshore Windfarm.

Sale of investment in Maple Smart Meter Assets: On 23 September 2020, the Group disposed of its 33% joint venture investment in

Maple Topco Limited, the smart meter services provider, for proceeds of £95.3m, recognising an exceptional gain on disposal of £70.4m.

Sale of stake in Doggerbank A&B Windfarms: On 4 December 2020, the Group announced it had agreed to sell a 10% stake in

Doggerbank A and Doggerbank B windfarms to Eni for consideration of £206.3m, including an interest adjustment of £3.8m, resulting in

a non-exceptional gain on disposal of £202.8m. The gain was recognised within the adjusted profit of the Group in line with the Group’s

stated exceptional policy for gains on disposal of divestments in offshore windfarms (see note 3).

On the same date, Eni entered into an agreement with Equinor to purchase a further 10% stake in the development. Following these

transactions, SSE and Equinor each hold a 40% equity stake and Eni a 20% stake.

270 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

16. Investments continued

16.4 Principal joint ventures and associates

Under IFRS 12 Disclosure of Interests in Other Entities, the Group has evaluated the key joint ventures and associates it holds with the

purpose of disclosing any which are materially significant in order to identify the impact on the Group’s financial position, performance

and cash flows, whilst identifying the nature of the risks associated with these interests. A full listing of the Group’s incorporated joint

ventures, joint operations, associates and investments are included in the Accompanying Information (A3 ).

Share of results of joint ventures and associates

2022

Windfarms

£m

2022

Thermal

Generation

£m

2022

Other (i)

£m

2022

Total

£m

2021

Total

(restated*)

£m

Revenue 292.9 179.3 83.2 555.4 389.9

Other Income 112.5 – – 112.5 102.5

Depreciation and amortisation (85.4) (19.0) (42.2) (146.6) (143.9)

Other operating costs (80.1) (128.4) (54.8) (263.3) (197.4)

Operating profit 239.9 31.9 (13.8) 258.0 151.1

Interest expense (52.4) (3.4) (12.0) (67.8) (82.4)

Changes in fair value of derivatives – – – – (0.9)

Corporation tax (68.8) (8.7) (2.0) (79.5) (22.3)

Share of post taxation results 118.7 19.8 (27.8) 110.7 45.5

Recognised in other comprehensive income

Cashflow hedges (ii) 184.9 3.6 – 188.5 24.8

Taxation (ii) (35.0) (0.7) – (35.7) (4.5)

Total comprehensive income 268.6 22.7 (27.8) 263.5 65.8

* The comparatives have been restated. See note 1.2.

(i) Other comprises the investments the Group holds in Neos Networks Limited and Marron Activ8 Energies Limited.

(ii) Other comprehensive income from net cashflow hedges of £181.4m includes £28.6m in relation to the disposal of SGN, which is disclosed as a discontinued operation.

Share of joint ventures and associates’ assets and liabilities

2022

Windfarms

£m

2022

Thermal

Generation

£m

2022

Other (i)

£m

2022

Total

£m

2021

Total

£m

Non-current assets 4,009.8 238.7 227.0 4,475.5 5,695.2

Current assets 131.8 51.2 40.5 223.5 431.7

Cash & cash equivalents 192.4 27.7 10.5 230.6 244.2

Current liabilities (243.2) (24.9) (73.1) (341.2) (565.3)

Non-current liabilities (3,618.0) (156.1) (139.1) (3,913.2) (4,708.0)

472.8 136.6 65.8 675.2 1,097.8

Other adjustments 589.2 45.6 (70.5) 564.3 545.7

Share of net assets of joint ventures and associates 1,062.0 182.2 (4.7) 1,239.5 1,643.5

Shareholder loans 546.0 101.6 89.3 736.9 554.3

Interest in joint venture and associate 1,608.0 283.8 84.6 1,976.4 2,197.8

Information on Group’s investments in joint ventures and associates is provided at A3, A4 and A5 .

16.5 Joint operations

Listed are the incorporated joint operations that have a material impact on the financial position and financial results of the Group.

Principal activity

Country of

incorporation

Class of

shares held

Proportion of

shares held (%)

Group

Interest (%) Year end

Greater Gabbard Offshore Winds Limited Offshore Windfarm UK Ordinary 50 50 31 March

North Falls Offshore Wind Farm Limited England and Wales UK Ordinary 50 50 31 March

The Group’s interest in Greater Gabbard Offshore Winds Limited is that of a joint operation designed to provide output to the parties

sharing control. The liabilities of the arrangement are principally met by the parties through the contracts for the output of the windfarm.

North Falls Offshore Windfarm Limited is the Greater Gabbard extension and thus also a joint operation.

The Group also has an unincorporated arrangement with Equinor under which it accounts for its 66.7% share of the Aldbrough gas

storage facility owned by SSE Hornsea Limited. The Group also had a similar arrangement for its North Sea Gas Production assets at

Greater Laggan, Sean, ECA and Bacton, all of which are owned by SSE E&P UK Limited and were disposed on 14 October 2021.

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

271SSE plc Annual Report 2022

16.6 Other investments held at fair value through other comprehensive income

Total

£m

At 31 March 2020 0.2

Additions in year 0.2

Dividends received in the year 0.1

Transfers – Joint Ventures and associates 2.0

Fair value adjustment through other comprehensive income 1.1

At 31 March 2021 3.6

Additions in year 5.4

Disposals in the year (0.4)

Transfers – Joint Ventures and associates –

Fair value adjustment through other comprehensive income 0.1

At 31 March 2022 8.7

17. Inventories

2022

£m

2021

£m

Fuel and consumables 127.9 104.2

Renewables Obligation Certificates 171.3 147.2

Gas stocks 1.0 17.4

Less: provisions held (33.6) (33.9)

266.6 234.9

Where Renewables Obligation Certificates (‘ROCs’) are self-generated or purchased to fulfil the Group’s environmental obligations, they

are recorded within intangible assets. ROCs held in excess of the Group’s environmental obligations are recorded within inventories.

The Group has recognised £685.8m within cost of sales in the year (2021: £376.7m).

18. Trade and other receivables

2022

£m

2021

£m

Non-current assets

Loan note receivable 136.4 115.9

Current assets

Trade receivables 1,433.9 832.2

Unbilled energy income 492.7 325.0

Contract related assets – 12.8

Other receivables 109.8 127.5

Cash held as collateral 83.8 2.7

Other prepayments and accrued income 90.8 188.0

2,211.0 1,488.2

Total trade and other receivables 2,347.4 1,604.1

The non-current loan note receivable includes £131.2m (2021: £115.9m) recognised on the disposal of SSE Energy Services on 15 January

2020 and is payable by Ovo by 2029 and £5.2m (2021: £nil) recognised on the disposal of the Contracting and Rail business to Aurelius

Group on 1 April 2021. The Ovo loan note carries interest of 13.25% and is presented cumulative of accrued interest repayments, discounted

at 13.25%.

Unbilled energy income represents an estimate of the value of electricity or gas supplied to customers between the date of the last meter

reading and the year end. Detail of the calculation applied to estimate this balance is included at note 4.1(iii). A 5% sensitivity on the unbilled

energy accrual would equate to an increase or decrease in the receivable balance of £24.6m (2021: £16.3m).

Contract related assets comprise amounts for goods or services provided under customer contracts, where the right to consideration is

contingent on a performance obligation other than the passage of time. The Group has therefore recognised a contract asset for any

work performed where payment is not yet due. The Group has assessed that the disclosures required under IFRS 15 to reconcile and

explain opening and closing contract assets are immaterial for the Group financial statements.

Other receivables include financial assets totalling £4.9m (2021: £3.8m). Cash held as collateral relates to amounts deposited on

commodity trading exchanges of £83.8m (2021: £2.7m).

Trade receivables and other financial assets are part of the Group’s financial exposure to credit risk as explained in accompanying

information note A6.

272 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

19. Trade and other payables

2022

£m

2021

£m

Current liabilities

Trade payables 919.7 433.3

Contract related liabilities (i) 46.3 38.8

Other creditors 330.2 269.7

Other accruals (ii) 1,376.4 1,245.5

2,672.6 1,987.3

Non-current liabilities

Contract related liabilities (i) 196.2 201.8

Other accruals (ii) 646.2 520.7

842.4 722.5

Total trade and other payables 3,515.0 2,709.8

(i) Current contract related liabilities includes customer contributions of £15.0m (2021: £15.4m) and non-current contract related liabilities includes customer

contributions of £196.2m (2021: £201.8m).

(ii) Current other accruals includes government grants of £nil (2021: £0.1m) and non-current other accruals includes government grants of £1.8m (2021: £1.9m).

20. Provisions

Decommissioning

(restated

)

£m

Legal &

restructuring

(restated

)

£m

Employee

(restated

)

£m

Other

(restated

)

£m

Total

£m

At 1 April 2020 569.7 33.0 38.8 20.0 661.5

Charged in the year 9.0 89.1 5.8 15.8 119.7

Decrease in decommissioning provision (11.1) – – – (11.1)

Unwind of discount 3.8 – – – 3.8

Released during the year (1.2) (2.9) – – (4.1)

Utilised during the year (24.8) (18.8) (8.0) (16.5) (68.1)

Transfer (to)/from held for sale 224.0 (51.7) – – 172.3

Exchange rate adjustments (1.4) – – – (1.4)

At 31 March 2021 768.0 48.7 36.6 19.3 872.6

Charged in the year – 74.1 3.0 20.6 97.7

Increase in decommissioning provision 178.7 – – – 178.7

Unwind of discount 5.7 – – – 5.7

Released during the year – (1.6) – – (1.6)

Utilised during the year (11.1) (27.2) (0.1) (2.3) (40.7)

Exchange rate adjustments (1.2) – – – (1.2)

At 31 March 2022 940.1 94.0 39.5 37.6 1,111.2

At 31 March 2022

Non-current 912.2 57.4 39.5 8.8 1,017.9

Current 27.9 36.6 – 28.8 93.3

940.1 94.0 39.5 37.6 1,111.2

At 31 March 2021

Non-current 746.6 5.0 36.6 5.1 793.3

Current 21.4 43.7 – 14.2 79.3

768.0 48.7 36.6 19.3 872.6

1 The Group has changed the presentation of the categories of its provisions following the disposal of its Contracting and Rail business on 30 June 2021. The

Contracting and Rail business had its own category of provision due to the materiality of provisions in that business. The Group has reassessed its categories

of provision within the continuing operations of the Group and restated comparatives to present on a consistent basis.

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

273SSE plc Annual Report 2022

Decommissioning provisions

Provision has been made for the estimated net present value of decommissioning the Group’s Thermal and Renewable power

generation assets, Gas Storage facilities and a retained 60% share of decommissioning costs of the disposed Gas Production business.

Cost estimates are based on the forecast remediation or clean-up costs based on current technology and prices for Renewable, Thermal

and Gas Storage assets are reviewed by independent valuation experts every three years. In the intervening years, management update

cost estimates based on factors arising since the last formal valuation date. Retained decommissioning costs in relation to the disposed

Gas Production business are periodically agreed with the field operators. The cost estimates include a risk adjustment and are inflated to

the projected decommissioning date using a market observable inflation rate. This projection is discounted using a risk-free discount rate

based on UK gilt rates with maturity date similar to the expected decommissioning date.

There is a wide range of assumed decommissioning dates across the obligation due to the number of assets and their varying ages,

which is summarised in the table below. Decommissioning dates are based on the useful economic lives of the individual assets based

on technology and price forecasts at the balance sheet date. It is possible that the forecast decommissioning dates will change due to

technology advances or decisions to repower wind farms when the current turbines reach the end of their respective lives. The date of

decommissioning of the Gas Production business can vary based on hydrocarbon reserve estimates and market commodity prices,

which can shorten or lengthen the economic life of the field.

Business Unit

Value of

provision

£m

Number of

decommissioning

sites

Forecast

decommissioning

dates

Renewables 297.7 47 2025 – 2049

Thermal 222.6 15 2022 – 2048

Gas Storage 160.8 18

2028 – 2048

Gas Production 249.4 4

2022 – 2037

Distributed Energy 9.6 1 2027

Total 940.1

1 The Group has two Gas Storage assets at Aldbrough and Atwick. In total there are 18 caverns with varying economic lives, therefore the number of sites has been

disclosed to more accurately reflect the scale and expected timing of decommissioning activities.

2 The Group has retained a 60% share of the decommissioning obligation for four Gas Production fields, though each field has multiple wells and shared

infrastructure that the Group retains an obligation to remediate.

The Group’s decommissioning provision has increased significantly during the year from £776.8m to £940.1m, primarily due to the

financial assumptions applied in calculating the obligation. An increase in the long term inflation rate to 3.8% (2021: 1.8%) has not been

offset by the increase in the risk free discount rates applied of between 1.6%-1.8% (2021: 0.8%-1.3%) which has had a significant impact

on the closing provision. During the year, the Group incurred £11.1m of decommissioning spend, primarily related to the Fiddlers Ferry

and Ferrybridge sites, included within Thermal above. Based on work completed to date, provisions accrued for the decommissioning of

these power stations are expected to be sufficient for the final cost of the works.

Impact of climate change on the Group’s decommissioning provisions

The Group has assessed that the most likely impact of climate change on its decommissioning provisions would be the enactment of

legislation that would result in the earlier closure of its unabated gas fired power stations. The decommissioning provision included in the

table above for these assets is based on forecast closure dates under legislation enacted at the balance sheet date and therefore forecast

closure dates have not been accelerated. In the sensitivity analysis below, a scenario has been included assuming legislation is enacted

that would result in closure of these assets from 2030.

Sensitivity analysis

Sensitivity analysis reflecting reasonably probable fluctuations to the main assumptions used in the calculation of the decommissioning

provisions is set out below:

Estimated impact on the decommissioning provision of:

2022

£m

Increasing the projected cost estimate by 10% 1,027.8

Increasing the inflation rate by 1.0% 1,051.2

Decreasing the discount rate by 0.5% 992.1

Closure of unabated gas CCGTs from 2030 931.7

1 The observable inflation rate applied within the model is higher than the risk-free discount rate, which results in a reduction of total obligation at 31 March 2022

when unabated gas CCGT decommissioning is accelerated to 2030.

274 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

20. Provisions continued

Legal and restructuring provisions

Provision has been made for costs associated with the restructure of the Group, including the disposal of SSE Energy Services, Neos

Networks Limited and the Group’s Contracting business. Provisions include IT costs, physical separation costs and provisions for onerous

contracts arising on disposal and are calculated on a best estimate basis and are expected to be utilised in the next 12-24 months. In the year

the Group recognised a charge of £35.0m for a tax indemnity provided to RockRose Energy Limited (‘RRE’) following the disposal of SSE E&P

Limited on 14 October 2021 (see note 12.2). The tax indemnity is contingent upon clearance of RRE’s tax treatment for the acquisition and

expected to be settled in the next 12-24 months.

Provisions have also been made for ongoing contract and legal disputes. Where outcomes are unknown, a range of possible scenarios

is calculated, with the most likely being reflected in the provision. The timing of settlement for legal provisions is more uncertain as it is

dependent upon legal resolution being achieved.

Employee related provisions

Employee related provisions include the Group’s employer financed retirement benefit provision for certain directors and former

directors and employees, which is valued in accordance with IAS 19 using assumptions consistent with the Scottish Hydro Electric

Pension Scheme (see note 23 for assumptions applied). In addition, the Group has legal obligations arising from severance payments due

to employees, which are measured based on length of service. At 31 March 2022, the provisions for severance are related to the closure

of Fiddler’s Ferry power station.

Other provisions

Other provisions include onerous contract provisions, mutualisation obligations and other contractual obligations and are calculated

based on a best estimate basis. The timing of settlement of these provisions varies by obligation between 2022 and 2025.

21. Sources of finance

21.1 Capital management

The Board’s policy is to maintain a strong balance sheet and credit rating to support investor, counterparty and market confidence in the

Group and to underpin future development of the business. The Group’s credit ratings are also important in maintaining an efficient cost

of capital and in determining collateral requirements throughout the Group. As at 31 March 2022, the Group’s long-term credit rating

was BBB+ stable outlook for Standard & Poor’s and Baa1 stable outlook for Moody’s.

The maintenance of a medium-term corporate model is a key control in monitoring the development of the Group’s capital structure

and allows for detailed scenarios and sensitivity testing. Key ratios drawn from this analysis underpin regular updates to the Board and

include the ratios used by the rating agencies in assessing the Group’s credit ratings.

The Group’s debt requirements are principally met through issuing bonds denominated in Sterling and Euros as well as private placements

and medium term bank loans including those with the European Investment Bank. On 1 April 2021, the Group exercised its option to redeem

its €600m hybrid equity bond (£421.1m). The bond had no fixed redemption date, but the Group had the option to redeem all of the bond on

1 April 2021 or every 5 years thereafter.

SSE’s adjusted net debt and hybrid capital was £8.6bn at 31 March 2022, compared with £8.9bn at 31 March 2021.

Adjusted net debt and hybrid capital is stated after removing lease obligations and cash held as collateral in line with the Group’s

presentation basis which is explained on page 210 . Cash held as collateral refers to amounts deposited on commodity trading

exchanges which are reported within ‘trade and other receivables’ on the face of the balance sheet.

The £1.5bn of committed bank facilities, being a £1.3bn Revolving Credit Facility with a March 2026 maturity and a £0.2bn bilateral

facility with an October 2026 maturity. These facilities can also be utilised to cover short term funding requirements; however, they

remain undrawn for most of the time and were undrawn at 31 March 2022. In addition, the Group has an established €1.5bn Euro

commercial paper programme (paper can be issued in a range of currencies and swapped into Sterling) and at 31 March 2022 £507m

of commercial paper was outstanding compared to £nil at 31 March 2021.

275SSE plc Annual Report 2022

The Group capital comprises:

2022

£m

2021

£m

Total borrowings (excluding lease obligations) 8,671.2 8,989.6

Less: Cash and cash equivalents (1,049.3) (1,600.2)

Net debt (excluding hybrid equity) 7,621 .9 7,389.4

Hybrid equity 1,051.0 1,472.4

Cash held as collateral and other short term loans (74.7) 37.1

Adjusted Net Debt and Hybrid Equity

APM

8,598.2 8,898.9

Equity attributable to shareholders of the parent 8,082.2 5,208.7

Total capital excluding lease obligations 16,680.4 14,107.6

Under the terms of its major borrowing facilities, the Group is required to comply with the following financial covenant:

• Interest Cover Ratio: The Group shall procure that the ratio of Operating Profit to Net Interest Payable for any relevant period is not

less than 2.5 to 1.

The following definitions apply in the calculation of these financial covenants:

• “Operating Profit” means, in relation to a relevant period, the profit on ordinary activities before taxation (after adding back Net

Interest Payable) of the Group for that relevant period but after adjusting this amount to exclude any exceptional profits (or losses)

and, for the avoidance of doubt, before taking account of any exceptional profits (or losses) and excluding the effect of IFRS 9

remeasurements.

• “Net Interest Payable” means, in respect of any relevant period, interest payable during that relevant period less interest receivable

during that relevant period.

In summary, the Group’s intent is to balance returns to shareholders between current returns through dividends and long-term capital

investment for growth. In doing so, the Group will maintain its capital discipline and will continue to operate within the current economic

environment prudently. There were no changes to the Group’s capital management approach during the year.

21.2 Loans and other borrowings

2022

£m

2021

£m

Current

Short-term loans 1,118.7 864.7

Lease obligations 72.1 72.9

1,190.8 937.6

Non-current

Loans 7,552 .5 8,124.9

Lease obligations 321.4 348.1

7,873.9 8,473.0

Total loans and borrowings 9,064.7 9,410.6

Cash and cash equivalents (1,049.3) (1,600.2)

Unadjusted net debt 8,015.4 7,810.4

Add/(less):

Hybrid equity 1,051.0 1,472.4

Lease obligations (393.5) (421.0)

Cash held as collateral and other short term loans (74.7) 37.1

Adjusted net debt and hybrid capital

APM

8,598.2 8,898.9

Cash and cash equivalents (which are presented as a single class of asset on the face of the balance sheet) comprise cash at bank and

short term highly liquid investments with a maturity of six months or less. The cash and cash equivalents are lower year on year due to

a lower surplus cash position at March 2022 as a result no debt issue in March 2022 compared to a £500m debt issue in March 2021.

276 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

21. Sources of finance continued

21.3 Borrowing facilities

The Group has an established €1.5bn Euro commercial paper programme (paper can be issued in a range of currencies and swapped

into sterling) and as at 31 March 2022 there was £507m commercial paper outstanding (2021: £nil). The Group also has £1.5bn of

revolving credit facilities (see note 21.1). These facilities continue to provide back-up to the commercial paper programme and,

as at 31 March 2022 these facilities were undrawn (2021: undrawn).

During the year to 31 March 2022, the Group through its Scottish Hydro Electric Transmission entity priced and committed to a £350m

dual tranche private placement being a £175m 10 year tranche @ 3.13% and £175m 15 year tranche @ 3.24% giving an all in average rate

of 3.19%. The pricing was committed to in March 2022 and the proceeds will be received on 30 June 2022.

In April 2022 SSE plc issued a €1bn NC6 equity accounted Hybrid bond @ 4% to re-finance the dual tranche debt accounted Hybrid

bonds whose first call date occurs on 16 September 2022 although SSE will take advantage of the 3 month par call option on these

Hybrid bonds meaning the bonds will be repaid on 16 June 2022. The €1bn equity accounted Hybrid bond was left in Euros with the

proceeds used to cover the portion of the maturing Hybrid that was swapped to Euros and a portion of the costs associated with the

acquisition of the European onshore renewables development platform from Siemens Gamesa Renewables Energy.

277SSE plc Annual Report 2022

Analysis of borrowings

2022

Weighted

average

interest

rate (iv)

2022

Face value

£m

2022

Fair value

£m

2022

Carrying

amount

£m

2021

Weighted

average

interest

rate (iii)

2021

Face value

£m

2021

Fair value

£m

2021

Carrying

amount

£m

Current

Bank Loans – non-amortising (i) 3.0% 150.0 151.1 150.0 0.8% 150.0 150.6 150.0

Other Short term loans – non-amortising (ii) 0.8% 507.1 507.5 506.1 – – – –

US Private Placement 16 April 2022 4.3% 162.7 197.8 162.7 – – – –

5.875% Eurobond Repayable

22 September 2022 5.9% 300.0 306.1 299.9 – – – –

4.25% Eurobond repayable

14 September 2021 – – – – 4.3% 300.0 305.0 299.8

2.375% €500m Eurobond repayable

10 February 2022 (v) – – – – 2.4% 415.0 424.6 414.9

Total current borrowings 1,119.8 1,162.5 1,118.7 865.0 880.2 864.7

Non-Current

Bank loans – non-amortising (i) 2.2% 350.0 344.3 349.9 2.9% 200.0 209.0 200.0

US Private Placement 16 April 2022 – – – – 4.3% 162.7 193.5 162.6

5.875% Eurobond repayable

22 September 2022 – – – – 5.9% 300.0 323.5 299.6

US Private Placement 28 April 2023 2.8% 35.0 35.4 34.9 2.8% 35.0 36.3 34.7

US Private Placement 6 September 2023 2.9% 120.0 120.1 119.4 2.9% 120.0 124.0 119.2

1.75% €700m Eurobond repayable

8 September 2023 (vi) 1.8% 514.6 524.0 514.3 1.8% 514.6 538.5 514.1

US Private Placement 16 April 2024 4.4% 204.1 250.6 204.0 4.4% 204.1 253.8 203.9

1.250% Eurobond Repayable 16 April 2025 (ix) 1.3% 531.4 533.4 531.4 1.3% 531.4 557.1 531.4

0.875% €600m Eurobond Repayable

8 September 2025 0.9% 510.9 504.3 504.2 0.9% 510.9 527.0 508.4

US Private Placement 8 June 2026 3.1% 64.0 63.8 63.3 – – – –

US Private Placement 6 September 2026 3.2% 247.1 258.7 244.3 – – – –

Between two and five years 2,577.1 2,634.6 2,565.7 2,578.7 2,762.7 2,573.9

Bank loans – non-amortising (i) 0.8% 200.0 200.7 200.0 1.6% 500.0 513.4 499.8

US Private Placement 8 June 2026 – – – – 3.1% 64.0 67.7 62.9

US Private Placement 6 September 2026 – – – – 3.2% 247.1 265.8 243.7

US Private Placement 6 September 2027 3.2% 35.0 34.8 34.6 3.2% 35.0 37.2 34.5

1.375% €650m Eurobond repayable

4 September 2027 (vii) 1.4% 591.4 588.7 590.2 1.4% 591.4 631.8 590.0

1.50% Eurobond Repayable 24 March 2028 1.5% 250.0 232.9 249.0 1.5% 250.0 248.0 248.8

8.375% Eurobond repayable on

20 November 2028 8.4% 500.0 659.0 497.2 8.4% 500.0 732.1 496.8

1.750% Eurobond Repayable 16 April 2030 (x) 1.8% 442.9 439.6 442.9 1.8% 442.9 485.3 442.9

5.50% Eurobond repayable on 7 June 2032 5.5% 350.0 428.6 350.1 5.5% 350.0 476.5 350.1

2.25% Eurobond repayable

27 September 2035 2.3% 350.0 314.1 347. 2 2.3% 350.0 350.1 347.0

2.125% Eurobond Repayable 24 March 2036 2.1% 250.0 220.7 248.3 2.1% 250.0 246.1 248.2

4.625% Eurobond repayable on

20 February 2037 4.6% 325.0 375.4 324.1 4.6% 325.0 425.3 324.2

6.25% Eurobond repayable on

27 August 2038 6.3% 350.0 473.3 347.5 6.3% 350.0 539.5 347.3

4.454% Index linked loan repayable

on 27 February 2044 4.5% 148.5 250.8 145.1 4.5% 135.9 241.7 135.4

1.429% Index linked bond repayable

on 20 October 2056 2.0% 153.9 251.2 154.2 2.0% 147.6 252.1 147.6

4.75% $900m NC5.5 Hybrid debt maturing

16 September 2077 (viii) 4.8% 725.4 727.6 725.0 4.8% 730.0 752.2 729.0

3.625% NC5.5 Hybrid maturing

16 September 2077 (viii) 3.6% 300.0 301.6 299.8 3.6% 300.0 307.3 299.6

Over five years 4,972.1 5,499.0 4,955.2 5,568.9 6,572.1 5,547.8

Fair value adjustment (iii) 31.6 3.2

Total non-current borrowings 7,549. 2 8,133.6 7,552.5 8,147.6 9,334.8 8,124.9

Total borrowings 8,669.0

9,296.1 8,671.2 9,012.6 10,215.0 8,989.6

Note: The Sterling-equivalent fair value reflects the fair value of non-Sterling denominated borrowings, post the impact of the hedges noted below.

(i) Balances include term loans and EIB debt and is a mixture of fixed and floating rate debt.

(ii) Balances include Commercial Paper and facility advances (£507.1m of Commercial Paper outstanding at 31 March 2022).

(iii) The fair value adjustment relates to the change in the carrying amount of the borrowings as a result of fair value hedges that are in place. The movement in the fair

value adjustment is recognised in the income statement with a corresponding movement on the hedging instrument also being recognised in the income statement.

278 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

21. Sources of finance continued

21.3 Borrowing facilities continued

(iv) The weighted average interest rates (including the effect of interest rate swaps) for the year ended 31 March 2022 was 3.12% (2021 – 3.12%).

(v) The 2.375% €500m Eurobond maturing 10 February 2022 has been swapped to Sterling giving an effective interest rate of 3.53%.

(vi) The 1.75% €700m Eurobond maturing 8 September 2023 has been swapped to Sterling giving an effective interest rate of 3.16%.

(vii) The 1.375% €650m Eurobond maturing 4 September 2027 has been swapped to Sterling giving an effective interest rate of 2.56%.

(viii) The 4.75% $900m NC5.5 Hybrid maturing 16 September 2077 has been swapped to Euros ($605m) and Sterling ($295m) giving an effective interest rate of 2.25%

and 3.29% respectively. This and the 3.625% NC5.5 Hybrid maturing 16 September 2077 are the Group’s debt-accounted Hybrids, see (ii) below.

(ix) The 1.250% €600m eurobond maturing 16 April 2025 has been swapped to Sterling giving an effective interest rate of 2.43%.

(x) The 1.750% €500m eurobond maturing 16 April 2030 has been swapped to Sterling giving an effective interest rate of 2.89%.

(i) Lease liabilities

Amounts charged under lease arrangements are detailed within note 6, and right of use assets recognised under lease arrangements are

detailed within note 14.

£m

At 1 April 2020 455.2

Additions during the year 43.6

Disposals during the year (7.9)

Unwind of discount 33.1

Repayment in the year (100.8)

Transfer to liabilities held for sale (2.2)

At 31 March 2021 421.0

Additions during the year 82.7

Disposals during the year (46.8)

Unwind of discount 31.7

Repayment in the year (95.1)

At 31 March 2022 393.5

The weighted average incremental borrowing rate applied to lease liabilities during the year was 4.92% (2021: 4.84%). Incremental

borrowing rates applied to individual lease additions in the year ranged between 4.81% to 5.06% (2021: 4.01% to 5.06%).

The Group has additional committed payments under short term and low value leases at 31 March 2022 of £11.3m (2021: £35.0m).

The maturity of future lease liabilities are as follows:

2022

£m

2021

£m

Within one year 88.7 92.7

Between one and five years 223.7 262.1

After five years 268.9 267.2

581.3 622.0

Less: future finance charge (187.8) (201.0)

Present value of lease obligations 393.5 421.0

(ii) Hybrid debt

On 16 March 2017, the Group issued £1.0bn of hybrid debt securities. The securities have an issuer first call date on 16 September 2022

and are able to be redeemed at the Group’s discretion. This dual tranche issue comprises £300m with a coupon of 3.625% and $900m

with a coupon of 4.75%. The $900m tranche was swapped back to both Euros and Sterling, bringing the all-in rate down to 2.72% and

resulting in an all-in funding cost for both tranches to SSE of 3.02% per annum. Due to these hybrid instruments having a fixed redemption

date, they are accounted for as a debt item and are included within Loans and Other Borrowings in note 21.2. This is in contrast to the

Hybrid instruments issued in 2015 and 2020 which have no fixed redemption date and are accounted for as Equity, see note 22.5.

279SSE plc Annual Report 2022

21.4 Reconciliation of net increase in cash and cash equivalents to movement in adjusted net debt

and hybrid equity

2022

£m

2021

£m

(Decrease)/increase in cash and cash equivalents (550.9) 1,435.6

Add/(less):

New borrowing proceeds (506.1) (1,912.9)

New hybrid equity proceeds – (1,051.0)

Repayment of borrowings 865.0 1,895.9

Disposal of borrowings – 438.6

Repayment of hybrid equity (i) 421.4 748.3

Non-cash movement on borrowings (40.5) 306.0

Increase/(decrease) in cash held as collateral and other short term loans 111.8 (293.5)

Decrease/(increase) in adjusted net debt and hybrids

APM

300.7 1,567.0

Cash held as collateral refers to amounts deposited on commodity trading exchanges and loans provided with a less than three month

maturity which are reported within trade and other receivables on the face of the balance sheet.

(i) On redemption of the hybrid equity £4.6m of costs were recognised within retained earnings.

21.5 Reconciliation of movements in financing liabilities

Financing cash flows Non-cash movements

31 March

2021

£m

New

borrowings

£m

Disposal of

borrowings

£m

Repayment

borrowings

£m

Repayment

of lease

creditor

£m

Fair value

movements

£m

Foreign

exchange

movements

£m

Lease

liabilities

£m

Re-

classification

£m

Other

£m

31 March

2022

£m

Financing

liabilities

Bank loans 699.7 – – – – – – – (150.0) 0.1 549.8

US private

placement 915.9 – – – – 29.8 – – (162.7) 1.5 784.5

Fixed rate

Eurobonds 5,278.1 – – – – (30.7) (4.8) – (299.9) 2.3 4,945.0

Index linked

loans 283.0 – – – – – – – – 16.3 299.3

Hybrid debt 950.8 – – – – 26.7 (4.7) – – 1.1 973.9

Total long term

borrowings 8,127.5 – – – – 25.8 (9.5) – (612.6) 21.3 7,552.5

Bank loans 150.0 – – (150.0) – – – – 150.0 – 150.0

Fixed rate

Eurobonds 712.1 – – (715.0) – 2.6 – – 299.9 0.3 299.9

Other short

term loans

– non-

amortising – 506.1 – – – – – – – – 506.1

US private

placement – – – – – – – – 162.7 – 162.7

Total short term

borrowings 862.1 506.1 – (865.0) – 2.6 – – 612.6 0.3 1,118.7

8,989.6 506.1 – (865.0) – 28.4 (9.5) – – 21.6 8,671.2

Lease liabilities 421.0 – – – (95.1) – – 67.6 – – 393.5

Total loans and

borrowings 9,410.6 506.1 – (865.0) (95.1) 28.4 (9.5) 67.6 – 21.6 9,064.7

Assets held

to hedge

long term

borrowings (315.4) – – – – 73.3 – – – – (242.1)

9,095.2 506.1 – (865.0) (95.1) 101.7 (9.5) 67.6 – 21.6 8,822.6

280 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

21. Sources of finance continued

21.5 Reconciliation of movements in financing liabilities continued

31 March

2020

£m

Financing cash flows Non-cash movements

31 March

2021

£m

New

borrowings

£m

Disposal of

borrowings

£m

Repayment

borrowings

£m

Repayment

of lease

creditor

£m

Fair value

movements

£m

Foreign

exchange

movements

£m

Lease

liabilities

£m

Re-

classification

£m

Other

£m

Financing

liabilities

Bank loans 849.7 438.6 (438.6) – – – – – (150.0) – 699.7

US private

placement 1,040.4 – – – – (126.0) – – – 1.5 915.9

Fixed rate

Eurobonds 4,625.2 1,474.3 – – – (86.3) (20.1) – (714.2) (0.8) 5,278.1

Index linked loans 280.4 – – – – – – – – 2.6 283.0

Hybrid debt 1,023.5 – – – – (54.5) (19.2) – – 1.0 950.8

Total long term

borrowings 7,819. 2 1,912.9 (438.6) – – (266.8) (39.3) – (864.2) 4.3 8,127.5

Bank loans 576.7 – – (574.8) – (1.9) – – 150.0 150.0

Fixed rate

Eurobonds 548.9 – – (548.7) – (5.0) 1.9 – 714.2 0.8 712.1

Other short term

loans – non-

amortising 772.4 – – (772.4) – – – – – – –

US private

placement – – – – – – – – – – –

Total short term

borrowings 1,898.0 – – (1,895.9) – (6.9) 1.9 – 864.2 0.8 862.1

9,717. 2 1,912.9 (438.6) (1,895.9) – (273.7) (37.4) – – 5.1 8,989.6

Lease liabilities 455.2 – – – (100.8) – – 66.6 – – 421.0

Total loans and

borrowings 10,172.4 1,912.9 (438.6) (1,895.9) (100.8) (273.7) (37.4) 66.6 – 5.1 9,410.6

Assets held to

hedge long

term

borrowings (84.8) 1.6 – – – (232.2) – – – – (315.4)

10,087.6 1,914.5 (438.6) (1,895.9) (100.8) (505.9) (37.4) 66.6 – 5.1 9,095.2

22. Equity

22.1 Share capital

Number

(millions) £m

Allotted, called up and fully paid:

At 1 April 2020 1,046.3 523.1

Issue of shares (i) 2.8 1.4

At 31 March 2021 1,049.1 524.5

Issue of shares (i) 24.0 12.0

At 31 March 2022 1,073.1 536.5

The Company has one class of ordinary share which carries no right to fixed income. The holders of ordinary shares are entitled to

receive dividends as declared and are entitled to one vote per share at meetings of the Company.

(i) Shareholders were able to elect to receive ordinary shares in place of the final dividend of 56.6p per ordinary share (in relation to year ended 31 March 2021) and

the interim dividend of 25.5p (in relation to the current year) under the terms of the Company’s scrip dividend scheme. This resulted in the issue of 22,201,443 and

1,782,473 new fully paid ordinary shares respectively (2021: 1,918,977 and 883,408). In addition, the Company issued 0.6m (2021: 0.9m) shares during the year

under the savings-related share option schemes (all of which were settled by shares held in Treasury) for a consideration of £6.3m (2021: £10.4m).

281SSE plc Annual Report 2022

Of the 1,073m shares in issue, 5.5m are held as treasury shares. These shares will be held by the Group and used to award shares to

employees under the Sharesave scheme in the UK.

During the year, on behalf of the Company, the employee share trust purchased 0.9m shares for a total consideration of £14.1m (2021:

0.9m shares, consideration of £12.9m) to be held in trust for the benefit of employee share schemes. At 31 March 2022, the trust held

6.3m shares (2021: 7.7m) which had a market value of £110.0m (2021: £112.5m).

22.2 Capital redemption reserve

The capital redemption reserve comprises the value of shares redeemed or purchased by the Company from distributable profits.

22.3 Hedge reserve

The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedge derivative

instruments related to hedged transactions that have not yet occurred.

22.4 Translation reserve

Comprises exchange translation differences on foreign currency net investments offset by exchange translation differences on

borrowings and derivatives classified as net investment hedges under IAS 39.

22.5 Hybrid equity

2022

£m

2021

£m

EUR 600m 2.375% perpetual subordinated capital securities (i) – 421.4

GBP 600m 3.74% perpetual subordinated capital securities (ii) 598.0 598.0

EUR 500m 3.125% perpetual subordinated capital securities (ii) 453.0 453.0

1,051.0 1,472.4

(i) 10 March 2015 €600m Hybrid Capital Bonds

The March 2015 hybrid equity bonds had no fixed redemption date, but the Company may, at its sole discretion, redeem all, but not part,

of the capital securities at their principal amount. The date for the first discretionary redemption of the €600m hybrid equity bond was

executed and this hybrid bond was redeemed on 1 April 2021.

(ii) 2 July 2020 £600m and €500m Hybrid Capital Bonds

The hybrid capital bonds issued in July 2020 have no fixed redemption date, but the Company may, at its sole discretion, redeem all but

not part of the capital securities at their principal amount. The date for the first potential discretionary redemption of the £600m hybrid

bond is 14 April 2026 and then every 5 years thereafter. The date for the first potential discretionary redemption of the €500m hybrid

capital bond is 14 July 2027 and then every 5 years thereafter. For the £600m Hybrid the coupon payments are made annually on

14 April and for the €500m Hybrid the coupon payments are made annually on 14 July.

(iii) Coupon payments

In relation to the €600m hybrid equity bond, the final coupon payment of £17.5m (2021: £17.5m) was made on 1 April 2021 and for the

£750m hybrid equity bond the final coupon payment of £29.1m was made on 10 September 2020. In relation to the £600m hybrid

equity bond a coupon payment of £16.8m (2021: £nil) was made on 14 April 2021 and for the €500m hybrid equity bond a coupon

payment of £16.4m (2021: £nil) was made on 14 July 2021.

The coupon payments in the year to 31 March 2022 consequently totalled £50.7m (2021: £46.6m).

The Company has the option to defer coupon payments on the bonds on any relevant payment date, as long as a dividend on the

ordinary shares has not been declared. Deferred coupons shall be satisfied only on redemption; or on a dividend payment on ordinary

shares, both of which occur at the sole option of the Company. Interest will accrue on any deferred coupon.

22.6 Equity attributable to non-controlling interests

Equity attributable to non-wholly owned but controlled subsidiaries which are consolidated within the financial statements of the Group

under IFRS.

282 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

23. Retirement benefit obligations

Defined benefit schemes

The Group has two funded final salary pension schemes which provide defined benefits based on final pensionable pay. The schemes

are subject to independent valuations at least every three years. The future benefit obligations are valued by actuarial methods on the

basis of an appropriate assessment of the relevant parameters.

The Group also has an Employer Financed Retirement Benefit scheme and a defined contribution scheme, SSE Pensions+ under a master

trust with Aviva. The Group matches employee contributions up to a specified limit, in most circumstances this is set at 6%. The Group

may also provide additional contributions of 3% after five years and a further 3% after ten year’s continuous Group service.

The Group presents its pension scheme valuations under two different measurement bases, an actuarial valuation and an IAS 19

valuation as required by accounting standards. The IAS 19 valuation is used to determine the assets and obligations recognised in the

Group’s consolidated balance sheet and is calculated annually by scheme actuaries, whereas the formal actuarial valuation is used to

determine the contributions the Group make to the scheme. The actuarial valuation is recalculated for each scheme every three years.

Actuarial valuations

The individual pension scheme details based on the latest formal actuarial valuations are as follows:

Scottish Hydro Electric Southern Electric

Latest formal actuarial valuation 31 March 2021 31 March 2019

Valuation carried out by Hymans Robertson Aon Hewitt

Value of assets based on valuation £2,050.5m £2,257.8m

Value of liabilities based on valuation £1,782.2m £2,544.4m

Valuation method adopted Projected Unit Projected Unit

Average salary increase RPI+0.5% RPI+0.5%

Average pension increase RPI RPI

Value of fund assets/accrued benefits 115.1% 88.7%

Future contributions

Scottish Hydro Electric Scheme

The last actuarial valuation of the scheme was carried out at 31 March 2021 and showed a surplus of £268.3m on a projected unit basis.

Following this valuation, the Group agreed to a new schedule of contributions to the scheme which continues to cease contributions

to the scheme during the year ended 31 March 2021 for a period until the surplus on gilts funding basis is negative for two successive

quarterly valuations. Consequently, the Group is not expected to make contributions to the scheme in the year ending 31 March 2023.

The next triennial funding valuation will be carried out as at 31 March 2024.

Southern Electric Pension Scheme

The last actuarial valuation of the Scheme was finalised in the year ended 31 March 2019 and showed a deficit of £286.6m as at 31 March

2019 on a projected unit basis. The Group continues to pay deficit contributions which, along with investment returns from return-

seeking assets, is expected to make good this shortfall by 31 March 2027. The next funding valuation will be carried out as at 31 March

2022. This process began during the year and is expected to be finalised by 31 December 2022. As part of that process the Trustee and

Company will agree future contributions to the scheme based on the valuation. The Company also pays contributions in respect of

current accrual, with some active members also paying contributions. Total contributions of approximately £56.7m are expected to be

paid by the Company during the year ending on 31 March 2023, including deficit repair contributions of £38.9m.

Pension summary as measured under IAS 19:

Scheme type

Net actuarial gain/(loss) recognised in

respect of the pension asset in the

statement of comprehensive income

Net pension asset/(liability)

2022

£m

2021

£m

2022

£m

2021

£m

Scottish Hydro Electric Defined benefit (24.6) 8.6 517.5 543.1

Southern Electric Defined benefit 221.9 (24.4) 67.4 (186.1)

Net actuarial gain/(loss) 197.3 (15.8) 584.9 357.0

283SSE plc Annual Report 2022

IFRC 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.

IFRIC 14 ‘IAS 19 – The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’ clarifies that future

refunds may be recognised if the sponsoring entity has an unconditional right to a refund in certain circumstances.

In 2016/17 the Group agreed with the trustees to the Scottish Hydro Electric pensions scheme an amendment to the scheme rules to

clarify that the Company has a clear right to any surplus upon final winding up of the scheme. This amendment removes the previous

restriction on recognition of any surplus and as such the previously applied restriction is no longer recognised. The net pension asset

of the Scottish Hydro Electric Scheme at 31 March 2022 was equal to £517.5m (2021: £543.1m).

At 31 March 2022, the Southern Electric Pension Scheme has a net surplus of £67.4m (2021: £186.1m net deficit), and unrecognised

future contributions of £195.7m (2021: £224.9m). The Group has assessed that it has the right to recognise current and any future

surpluses on the scheme, therefore has not recognised a liability for future unrecoverable contributions.

23.1 Pension scheme assumptions

Both schemes have been updated to 31 March 2022 by qualified independent actuaries. The valuations have been prepared for the

purposes of meeting the requirements of IAS 19. The major assumptions used by the actuaries in both schemes were:

At 31 March

2022

At 31 March

2021

Rate of increase in pensionable salaries 4.2% 3.7%

Rate of increase in pension payments 3.7% 3.2%

Discount rate 2.7% 2.0%

Inflation rate 3.7% 3.2%

The assumptions relating to longevity underlying the pension liabilities at 31 March 2022 are based on standard actuarial mortality tables,

and include an allowance for future improvements in longevity. The assumptions, equivalent to future longevity for members in normal

health at age 65, are as follows:

Scottish Hydro Electric

At 31 March 2022 At 31 March 2021

Male Female Male Female

Currently aged 65 22 24 23 24

Currently aged 45 24 27 25 27

Southern Electric

At 31 March 2022 At 31 March 2021

Male Female Male Female

Currently aged 65 23 25 23 25

Currently aged 45 24 26 24 26

284 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

23. Retirement benefit obligations continued

23.2 Sensitivity analysis

The impact on the schemes’ liabilities of changing certain of the major assumptions is as follows:

Scottish Hydro Electric

At 31 March 2022 At 31 March 2021

Increase/

decrease in

assumption

Effect on

scheme’s

liabilities

Increase/

decrease in

assumption

Effect on

scheme’s

liabilities

Rate of increase in pensionable salaries 0.1% 0.1% 0.1% +/- 0.1%

Rate of increase in pension payments 0.1% 0.9% 0.1% +/- 1.0%

Discount rate 0.1% 1.0% 0.1% +/- 0.9%

Longevity 1 year 2.0% 1 year +/- 1.8%

Southern Electric

At 31 March 2022 At 31 March 2021

Increase/

decrease in

assumption

Effect on

scheme’s

liabilities

Increase/

decrease in

assumption

Effect on

scheme’s

liabilities

Rate of increase in pensionable salaries 0.1% 0.2% 0.1% +/- 0.2%

Rate of increase in pension payments 0.1% 1.5% 0.1% +/- 1.5%

Discount rate 0.1% 1.5% 0.1% +/- 1.6%

Longevity 1 year 5.8% 1 year +/- 6.0%

23.3 Valuation of combined Pension Schemes

Quoted

£m

Unquoted

£m

Value at

31 March 2022

£m

Quoted

£m

Unquoted

£m

Value at

31 March 2021

£m

Equities 511.5 – 511.5 626.8 – 626.8

Government bonds 1,332.7 – 1,332.7 1,139.9 – 1,139.9

Corporate bonds 167.6 – 167.6 176.7 – 176.7

Insurance contracts (i) – 713.5 713.5 – 780.3 780.3

Other investments 1,585.9 – 1,585.9 1,588.4 – 1,588.4

Total fair value of plan assets 4,311.2 4,312.1

Present value of defined benefit obligation (3,726.3) (3,955.1)

Surplus in the schemes 584.9 357.0

Deferred tax thereon (ii) (146.2) (67.8)

Net pension asset 438.7 289.2

(i) See details of valuations of insurance contracts in note 23.6 (ii).

(ii) Deferred tax rate of 25% applied to net pension surplus position (2021: 19%).

285SSE plc Annual Report 2022

23.4 Movements in the combined defined benefit asset obligations and assets during the year

2022 2021

Assets

£m

Obligations (i)

£m

Total Assets

£m

Obligations (i)

£m Total

At 1 April 4,312.1 (3,955.1) 357.0 3,922.9 (3,581.2) 341.7



Included in Income Statement

Current service cost – (31.0) (31.0) – (29.3) (29.3)

Past service cost – (5.1) (5.1) – (5.8) (5.8)

Settlements and curtailments (2.5) 2.6 0.1 (7.7) 9.3 1.6

Interest income/(cost) 85.2 (77.6) 7.6 88.5 (80.2) 8.3

 82.7 (111.1) (28.4) 80.8 (106.0) (25.2)



Included in Other Comprehensive

Income

Actuarial gain/(loss) arising from:

Demographic assumptions – 16.8 16.8 – (23.1) (23.1)

Financial assumptions – 195.6 195.6 – (461.5) (461.5)

Experience assumptions – (41.5) (41.5) – 21.8 21.8

Return on plan assets excluding interest

income 26.4 – 26.4 447.0 – 447.0

 26.4 170.9 197.3 447.0 (462.8) (15.8)



Other

Contributions paid by the employer 59.0 – 59.0 56.3 – 56.3

Scheme participant’s contributions 0.1 (0.1) – 0.1 (0.1) –

Benefits paid (169.1) 169.1 – (195.0) 195.0 –

 (110.0) 169.0 59.0 (138.6) 194.9 56.3

Balance at 31 March 4,311.2 (3,726.3) 584.9 4,312.1 (3,955.1) 357.0

Pension scheme contributions and costs

Charges/(credits) recognised:

2022

£m

2021

£m

Service costs (charged to operating profit) 36.1 35.1

Settlements and curtailment gains (0.1) (1.6)

36.0 33.5

(Credited)/charged to finance costs:

Interest from pension scheme assets (85.2) (88.5)

Interest on pension scheme liabilities 77.6 80.2

(7.6) (8.3)

The return on pension scheme assets is as follows:

2022

£m

2021

£m

Return on pension scheme assets 111.6 535.5

286 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

23. Retirement benefit obligations continued

23.4 Movements in the combined defined benefit asset obligations and assets during the year continued

Defined contribution scheme

The total contribution paid by the Group to defined contribution pension schemes was £57.3m (2021: £61.6m).

Employer financed retirement benefit (EFRB) pension costs

The decrease in the year in relation to EFRB was £1.1m (2021: £5.8m). This is included in Employee related provisions (note 20).

Staff costs analysis

The pension costs in note 8 can be analysed as follows:

2022

£m

2021

£m

Service costs 36.1 35.1

Defined contribution scheme payments 57.3 61.6

93.4 96.7

23.5 Pension scheme risk assessment and mitigation

Risks to which the Pension Schemes exposes the Group

The nature of the Group’s defined benefit pension schemes expose the Group to the risk of paying unanticipated additional contributions

to the schemes in times of adverse experience. The most financially significant risks are likely to be:

(i) Asset volatility

The liabilities are calculated using a discount rate set with reference to corporate bond yields; if assets underperform this yield, this will

create a deficit. The schemes hold a proportion of growth assets (equities, diversified growth fund and global absolute return fund) which,

though expected to outperform corporate bonds in the long-term, create volatility and risk in the short-term. The allocation to growth

assets is monitored to ensure it remains appropriate given the schemes’ long term objectives. The SHEPS has a much lower proportion

of growth assets than the SEPS reflecting the maturity of each scheme.

(ii) Changes in bond yields

A decrease in corporate bond yields will increase the value placed on the schemes’ liabilities for accounting purposes. However, this will

be partially offset by an increase in the value of the schemes’ bond holdings and its interest rate hedging in both schemes.

(iii) Inflation risk

The majority of the schemes’ benefit obligations are linked to inflation, and higher inflation will lead to higher liabilities (although, in most

cases, caps on the level of inflationary increases are in place to protect against extreme inflation). The majority of the assets are either

unaffected by or only loosely correlated with inflation, meaning that an increase in inflation will also increase the deficit, although this is

further limited by the inflation hedging in both schemes.

(iv) Life expectancy

The majority of the schemes’ obligations are to provide benefits for the life of the members, so an increase in the life expectancy will

result in an increase in the liabilities. The sensitivity analysis disclosed is intended to provide an indication of the impact on the value of

the schemes’ liabilities of the risks highlighted.

(v) Liability versus asset risk

The risk that movement in the value of the schemes’ liabilities are not met by corresponding movements in the value of the schemes’

assets will expose the Group to movements in the overall funding surplus.

23.6 Risk mitigation

(i) De-risking

The Trustees have taken a number of steps to control the level of investment risk including reducing the Schemes’ exposures to higher

risk assets and increasing the level of protection against adverse movements in interest rates and inflation. The Trustees of both schemes

continue to review the risk exposures in light of the longer term objectives of the respective schemes. Detailed below are further details

on the hedging of pensioner longevity risk.

(ii) 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 Group 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 and any members who retire after 1 October 2019.

287SSE plc Annual Report 2022

(iii) Asset-liability matching strategies used by the Scheme

The Company and trustees of the schemes have agreed a long term investment strategy that seeks to reduce investment risk as and

when appropriate. The asset-liability matching strategy is part of this approach which aims to reduce the volatility of the funding level

of the pension schemes by investing in assets which perform in line with the liabilities of the schemes so as to protect against inflation

being higher than expected. This has been adopted for a proportion of the schemes’ assets, which is designed to provide partial

protection against adverse movements in interest rates and inflation. The trustees of the respective schemes review the schemes’

asset allocation on an ongoing basis in light of changes in the funding position and market opportunities.

23.7 Risk assessment

(i) Maturity profile of the defined benefit obligations

The weighted average duration of the defined benefit obligation is 17 years (2021: 18 years) for the Scottish Hydro Electric Pension

Scheme and 16 years (2021: 17 years) for the Southern Electric Pension Scheme.

(ii) Information about the defined benefit obligations

Status of members is weighted by the liabilities of each scheme.

Scottish Hydro

Electric

Southern

Electric Scheme

Active members 23 28

Deferred members 14 9

Pensioners 63 63

100 100

23.8 Pension scheme policies

(i) Recognition of gains and losses

The Group recognises actuarial gains and losses in the Statement of Other Comprehensive Income following the re-measurement of the

net defined benefit liabilities of the schemes.

(ii) Methods and assumptions used in preparing the sensitivity analyses

The sensitivities disclosed are calculated using approximate methods taking into account the duration of the schemes’ liabilities. While

these have been calculated consistently with the previous financial year, the method applied may change over time with financial

conditions and assumptions.

(iii) Asset recognition

The Group has recognised net pension assets in relation to the Scottish Hydro Electric pension scheme due to a surplus existing under

IAS 19 accounting. The Group will only recognise a surplus should it have rights to that surplus under the rules of the pension scheme.

The company no longer applies the ‘asset ceiling’ restriction mandated by IFRIC 14. Details on this key accounting consideration are

provided above.

(iv) Fair value assessment of scheme assets

The Group seeks to assess whether there is a quotable market value (referenced as “quotable” above) in relation to pension scheme

assets held. This assessment is based on regular reviews conducted in conjunction with the trustees of the schemes. For assets where no

quotable market value exists, these assets will be valued based on a set methodology agreed by trustees and scheme advisors and then

regularly assessed.

Currently only one unquotable value exists within the two pension schemes of the Group, this being insurance contracts (or ‘buy-in’)

held by the Scottish Hydro Electric Scheme. These assets are currently valued consistently with the scheme’s liabilities with the expected

return on these assets being set equal to the discount rate.

288 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the consolidated financial statements continued

For the year ended 31 March 2022

24. Financial instruments

For financial reporting purposes, the Group has classified derivative financial instruments into two categories, operating derivatives

and financing derivatives. Operating derivatives include all qualifying commodity contracts including those for electricity, gas, oil, and

carbon. 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.

24.1 Financial instruments – income statement

2022

£m

2021

£m

Operating derivatives

Total result on operating derivatives (i) 3,527. 2 429.1

Less: Amounts settled (ii) (1,426.8) 161.0

Movement in unrealised derivatives 2,100.4 590.1

Financing derivatives (and hedged items)

Total result on financing derivatives (i) (43.3) 35.2

Less: Amounts settled (ii) 64.3 20.4

Movement in unrealised derivatives 21.0 55.6

Net income statement impact 2,121.4 645.7

(i) Total result on derivatives in the income statement represents the total amounts (charged) or credited to the income statement in respect of operating and

financial derivatives.

(ii) Amounts settled in the year represent the result on derivatives transacted which have matured or been delivered and have been included within the total result

onderivatives.

24.2 Financial instruments – balance sheet

The derivative financial assets and (liabilities) are represented as follows:

2022

£m

2021

£m

Derivative financial assets

Non-current 371.7 114.7

Current 2,941.8 470.9

Total derivative assets 3,313.5 585.6

Derivative liabilities

Non-current (549.6) (452.1)

Current (701.5) (238.7)

Total derivative liabilities (1,251.1) (690.8)

Net liability 2,062.4 (105.2)

Information on the Group’s financial risk management and the fair value of financial instruments is available at A6 and A7 .

289SSE plc Annual Report 2022

25. Commitments and contingencies

25.1 Capital commitments

2022

£m

2021

£m

Capital expenditure:

Contracted for but not provided 985.9 1,189.5

Contracted for but not provided capital commitments include the fixed contracted costs of the Group’s major capital projects. In practice

contractual variations may arise on the final settlement of these contractual costs.

25.2 Contingent assets and liabilities

The Group has unrecognised contingent assets in relation to the part disposal transactions of Neos Networks Limited, SSE Slough

Multifuel Limited, Seagreen and Doggerbank C and the disposal of SSE Contracting. In total, contingent consideration receivable is

up to £187.1m, for which the Group has recognised a net receivable of £4.1m. The payments of the remaining £183.0m are subject

to various earn outs or contract and planning milestones, some of which the Group has assessed are unachievable or are out of the

Group’s control. At 31 March 2022, the Group has assessed that there is neither the required certainty of receipt, nor the ability to

accurately assess the amounts receivable for recognition of these amounts.

Contingent liabilities for the Group solely relate to SSE plc, and have been disclosed within note 12 to the Company Financial Statements.

26. Post balance sheet events

26.1 Acquisition – European onshore renewables development platform

On 19 April 2022 the Group announced that it had entered into an agreement with Siemens Gamesa Renewable Energy (“SGRE”) to

acquire SGRE’s existing European onshore renewable energy development platform for consideration of €580m, subject to a number of

conditions. The SGRE portfolio is mainly located in Spain with the remainder across France, Italy and Greece. The transaction is expected

to complete by the end of September 2022 subject to the receipt of relevant foreign direct investment and regulatory approvals. This

acquisition is aligned to the Group’s published strategy to pursue overseas renewable opportunities.

26.2 Issuance of hybrid equity bond

In April 2022 SSE plc issued a €1bn NC6 equity accounted Hybrid bond @ 4% to re-finance the dual tranche debt accounted Hybrid

bonds whose first call date occurs on 16 September 2022 although SSE will take advantage of the 3 month par call option on these

Hybrid bonds meaning the bonds will be repaid on 16 June 2022. The €1bn equity accounted Hybrid bond was left in Euros with the

proceeds used to cover the portion of the maturing Hybrid that was swapped to Euros and a portion of the costs associated with the

acquisition of the European onshore renewables development platform from SGRE.

26.3 Issuance of private placement debt

In March 2022 the Group, through its Scottish Hydro Electric Transmission entity priced and committed to a £350m dual tranche private

placement being a £175m 10 year tranche @ 3.13% and £175m 15 year tranche @ 3.24% giving an all in average rate of 3.19%. The pricing

was committed to in March 2022 and the proceeds will be received on 30 June 2022.

26.4 Fiddlers Ferry site disposal

Subsequent to the year end, the board committed to dispose of the Fiddlers Ferry site, pending resolution of a final agreement with

anticipated completion expected within 6 months.

290 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information

A1. Basis of consolidation and significant accounting policies

A1.1 Basis of consolidation

The financial statements consolidate the results of the Company and its subsidiaries together with the Group’s share of the results and

net assets of its interests in joint arrangements and associates. Where necessary to ensure consistency, the accounting policies of the

subsidiaries, joint arrangements or associates have been adjusted to align to the accounting policies of the Group. Intra-Group balances

and any unrealised gains and losses or income and expenses arising from Intra-Group transactions are eliminated in preparing the

consolidated financial statements. Unrealised gains and losses arising from transactions with joint arrangements and associates are

eliminated to the extent of the Group’s interest in the entity. Non-controlling interests represent the equity in subsidiaries that is not

attributable, either directly or indirectly, to SSE plc shareholders.

Subsidiaries (Accompanying Information A3)

Subsidiaries are those entities controlled by the Group or the Company. Control exists when the Group has the power, directly or

indirectly, to govern the financial and operating policies of an entity in order to obtain variable returns from its activities. In assessing

control, potential voting rights that are currently exercisable or convertible are taken into account. The financial statements of subsidiaries

acquired are consolidated in the financial statements of the Group from the date that control commences until the date control ceases.

Transactions with non-controlling interests that relate to their ownership interests and do not result in a loss of control are accounted for

as equity transactions.

Interests in joint arrangements and associates (note 16 and Accompanying Information A3)

Joint arrangements, as defined by IFRS 11 “Joint Arrangements”, are those arrangements that convey to two or more parties ‘joint control’.

Joint control exists when decisions about the ‘relevant activities’, being the financial, operational or strategic policies of the arrangement,

are made with the unanimous consent of the parties sharing control. Whilst this assessment is principally focused on any ‘Reserved Matters’,

being the material activities that typically require all significant shareholders to approve, other contractual agreements such as Power

Purchase Agreements and Management Services Agreements are also considered. The Group’s investments in joint arrangements are

classified as either joint operations or joint ventures depending on the investee’s legal form and the investor’s contractual rights and

obligations over the assets and liabilities of the investee.

Associates are those investments over which the Group has significant influence but neither control nor joint control.

The Group’s interests in its joint operations are accounted for by recognising its share of the assets, liabilities, revenue and expenses

of the operation. In these arrangements, the Group’s share of the revenue will be eliminated as it relates to its purchased share of the

output from the arrangement.

The Group’s joint ventures and associates are accounted for using the equity method of accounting where the joint venture and associate

net investments (comprising both equity and long term loans) are carried at historical cost plus the Group’s share of post-acquisition results,

less any impairment in value. For those investments that were formerly subsidiaries of the Group, this will also include any fair value uplift

arising from loss of control. The Group recognises its share of the results of these equity-accounted operations after tax and interest in the

income statement.

Foreign currencies

The consolidated financial statements are presented in pounds sterling, which is the functional currency of the parent. Each entity in the

Group determines its own functional currency and items included in the financial statements of each entity are measured accordingly.

Transactions in foreign currencies are recorded at the rate ruling at the date of the transaction. Monetary assets and liabilities denominated

in foreign currencies are translated at the rate of exchange ruling at the balance sheet date. Any gain or loss arising on the restatement

of such items is taken to the income statement as a Finance Cost, with the exception of exchange gains or losses on foreign currency

borrowings that provide a hedge against a net investment in a foreign entity or exchange gains or losses incurred as part of a qualifying cash

flow hedge. These exchange gains or losses are transferred to the translation reserve to the extent the hedge is effective. Non-monetary

assets that are measured in terms of historical cost in a foreign currency are translated at the historic rate at the date oftransaction.

For the purpose of presenting the consolidated financial statements, the assets and liabilities of the Group’s foreign operations are

translated into pounds sterling at the balance sheet closing rate. The results of these operations are translated at the average rate in the

relevant period. Exchange differences on retranslation of the opening net assets and the results of foreign operations are transferred to

the translation reserve and are reported in the consolidated statement of comprehensive income.

The average and spot rates for the principal functional currencies that the Group’s foreign operations are denominated in are shown in

the table below.

2022 2021 Change

EUR v GBP Year end spot rate 1.1856 1.1745 0.9%

Average spot rate 1.1750 1.1249 4.5%

291SSE plc Annual Report 2022

A1.2 Significant accounting policies

Revenue (notes 2 and 5)

Revenue from contracts with customers is recognised to the extent that it reflects the expected consideration for goods or services

provided to the customer under contract, over the performance obligations they are being provided. For each separable performance

obligation identified, the Group determines whether it is satisfied at a “point in time” or “over time” based upon an evaluation of the

receipt and consumption of benefits, control of assets and enforceable payment rights associated with that obligation. If the criteria

required for “over time” recognition are not met, the performance obligation is deemed to be satisfied at a “point in time”.

Revenue principally arises as a result of the Group’s activities in energy production, storage, transmission, distribution, supply and related

services in the energy markets in Great Britain and Ireland. The key policies applied by each Business Area are as follows:

Transmission

Use of electricity transmission networks

Revenue from use of electricity transmission networks is derived from the allowed revenue as defined by the parameters in the relevant

electricity transmission licence, which informs the tariffs we set.

Electricity transmission revenue is determined in accordance with the regulatory licence, based on an Ofgem approved revenue model and is

recognised “over time” as charged to National Grid. Where this revenue differs from the allowed revenue, there may be an over- or under-

recovery of revenue which will be reflected in future financial year’s allowed revenue as set out in the regulatory licence. No accounting

adjustments are therefore made for over- or under-recoveries in the year that they arise.

Transmission network contracted services

Where the Group has an ongoing obligation to provide contracted services (transmission network connections), revenues are recognised

“over time” consistent with the customer receiving and consuming the benefits of that service across the expected contractual service

period. Any assets constructed in order to deliver the service are capitalised and depreciated over their useful life. Payments from customers

are typically received from customers in advance of providing the contracted service and are deferred on balance sheet. No extended

warranty periods are offered.

Distribution

Use of electricity distribution networks

Revenue from use of electricity distribution networks is derived from the allowed revenue as defined by the parameters in the relevant

electricity distribution licence, which informs the tariffs we set.

Electricity distribution revenue recognised is based on the volume of electricity distributed “over time”, as use of distribution service is

determined by the customer, and the set customer tariff. As with electricity transmission revenue, any over- or under-recovery of revenue

is reflected in future financial year’s allowed revenue as set out in the regulatory licence. No accounting adjustments are therefore made

for over- or under-recoveries in the year that they arise.

The Distribution business is responsible for recovering industry charges for supplier failures from customers under Ofgem’s Supplier of

Last Resort scheme. The Group’s policy is to recognise revenue for recovered amounts when the Group is entitled to invoice customers

through its regulated use of system tariff. The Group recognises its obligation to pay amounts recovered to eligible suppliers when the

Group is entitled to invoice customers through its regulated use of system tariff.

Distribution network contracted services

Where the Group has an ongoing obligation to provide contracted services (such as for distribution network connections), revenues are

recognised “over time” consistent with the customer receiving and consuming the benefits of that service across the expected contractual

service period. Any assets constructed in order to deliver the service are capitalised and depreciated over their useful life. Payments from

customers are typically received from customers in advance of providing the contracted service and are deferred on balance sheet. No

extended warranty periods are offered.

Renewables

Electricity generation

Revenue from the physical generation of electricity is recognised “point in time” as generated and supplied to the national settlements body.

Revenue is measured at either the spot price at the time of delivery, or trade price where that trade is eligible for “own use” designation.

Renewables contracted services

Revenue from national support schemes, such as Renewable Obligation Certificates, is recognised at the point the performance obligation

has been met. This is typically considered to be either at the point electricity has been physically generated or over the contractual period,

depending on the underlying performance obligation. Revenue is measured either at the market rate at the point of generation, or at the

fixed contractual consideration, depending on the individual scheme mechanic.

Revenue from other ancillary generation services is recognised “over time” consistent with the customer receiving and consuming the

benefits of those services across the expected contractual service period, and at the contracted consideration.

292 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A1. Basis of consolidation and significant accounting policies continued

A1.2 Significant accounting policies continued

Thermal

Electricity generation

Revenue from the physical generation of electricity is recognised “point in time” as generated and supplied to the national settlements body.

Revenue is measured at either the spot price at the time of delivery, or trade price where that trade is eligible for “own use” designation.

Gas storage

Revenue from gas storage trading activities is recognised “point in time” as injected back into the network. Revenue is measured at either

the spot price at the time of delivery, or trade price where that trade is eligible for “own use” designation.

Thermal Generation contracted services

Revenue from national support schemes, such as the Capacity Market, is recognised at the point the performance obligation has been met.

This is typically considered to be either at the point electricity has been physically generated or over the contractual period, depending on

the underlying performance obligation. Revenue is measured either at the market rate at the point of generation, or at the fixed contractual

consideration, depending on the individual scheme mechanic.

Revenue from other ancillary generation services is recognised “over time” consistent with the customer receiving and consuming the

benefits of those services across the expected contractual service period, and at the contracted consideration.

Customers

Supply of energy

Revenue on the supply of energy comprises sales to domestic and business end-user customers based on actual energy consumption

including an estimate of the value of electricity and gas supplied to customers between the date of the last meter reading and the year end.

Revenue is recognised “over time” consistent with the delivery of energy to the customer as we consider the receipt and consumption of

the benefits of the energy to be simultaneous. Revenue is measured based on the applicable customer tariff rate and after deduction of any

applicable contractual discounts.

Details of the estimation process for the value of electricity and gas supplied to customers is given within note 4.1(iii).

Payments from customers may be received in advance of providing the contracted service and are deferred on balance sheet. Amounts

received from customers in relation to energy management services provided by Third Party Intermediaries (’TPIs’) are offset against

payments to those TPIs, reflecting the responsibility for providing the energy management service.

Energy related services

Where the Group has an ongoing obligation to provide contracted energy related services, revenues are recognised “over time” consistent

with the customer receiving and consuming the benefits of that service across the expected contractual service period at the fixed

contracted rate. Where the Group has an obligation to perform a specific service, revenues are recognised “point in time”, following

performance of the service at the fixed contracted consideration. No extended warranty periods are offered.

Distributed Energy

Construction related services

Construction related service revenue primarily relates to the Contracting and Rail business, which was disposed on 30 June 2021. For

construction related services, revenue is recognised for each identified performance obligation “over time” by applying an input method

to determine the proportion of total contract revenue (being fixed price consideration plus the latest estimate of variable consideration)

that should be recognised. The input method applied is calculated by reference to the costs incurred to date on that performance

obligation, relative to the total expected costs to satisfy that performance obligation, provided the contract outcome can be assessed

with reasonable certainty. Revenue from non-contracted agreements or variations to contracted work is only recognised to the extent

there is additional supporting evidence to their recoverability and may be subject to constraints on recognition. Revenue on contracts in

customer dispute is recognised only to the extent it is considered to be highly probable that the revenue will be recovered.

Commissions in relation to acquisition of construction related contracts are expensed as incurred. No extended warranty periods are

offered. Payments from customers are based on agreed billing schedules, with payment milestones typically aligned with delivery of

performance obligations.

EPM & I

Commodity optimisation and other services

Income from sales commodity optimisation trading occurring in any business unit is presented net in cost of sales alongside purchase

commodity optimisation trades.

Revenue arising on commodities purchased in excess of the Group’s requirements and recorded as inventory assets, such as Renewables

Obligation Certificates, is recognised “point in time” on disposal of these inventory assets to third parties.

Revenue from other ancillary services is recognised “over time” consistent with the customer receiving and consuming the benefits of

those services across the expected contractual service period, and at the contracted consideration.

293SSE plc Annual Report 2022

Physical energy production

Revenue from the physical production of natural gas, crude oil and condensates arises from the Group’s interest in various joint ventures

and associates and is based on the entitlement method; whereby the Group’s share of interest and production sharing terms are used to

determine the allocation of production to each party in the arrangement. Revenue is recognised “point in time” based on the production

that has been delivered to the customer at the specified delivery point and measured based on the applicable market price as specified in

the customer contracts. On the 14 October 2021 the Gas Production business was disposed.

Aside from where specifically noted above, consideration is due when the performance obligation has been satisfied. As the period

between satisfaction of the performance obligation and receipt of consideration from the customer is expected to be less than a year,

the Group has applied the practical expedient not to adjust revenue for the effect of any financing components.

Revenue from sources other than the Group’s contracts with customers principally comprise meter rental income within the Enterprise

business, and Contract for Difference income within certain Joint Venture arrangements.

Income on meter rental agreements, which are classified as operating leases, are presented as revenue where they relate to the core

operating activities of that business. Lease payments are recognised as income on a straight-line basis over the lease term.

Contract for Differences are agreements between a low carbon electricity generator and the Low Carbon Contracts Company (‘LCCC’),

a UK Government owned entity responsible for delivering support mechanisms for low-carbon electricity generation. These agreements

are not considered to be contracts with a customer, as the LCCC does not receive any goods or services from the generator. These

arrangements are instead considered to be Government Grants, with income arising from these grants recognised in the income

statement in the period in which generation takes place. This income is presented as revenue where they relate to the core operating

activities of that business.

Cost of sales (note 6)

Cost of sales includes fuel and energy purchases, direct employee benefits, and depreciation of property, plant and equipment.

The net result from sales and purchases of commodity optimisation trades – comprising both realised and unrealised gains and losses

arising from optimisation trading activities – is also presented within cost of sales, reflecting the underlying economic purpose of this

trading activity.

Finance income and costs (note 9)

Interest income and costs are recognised in the income statement as they accrue, on an effective interest method. The issue costs and

interest payable on bonds and all other interest payable and receivable is reflected in the income statement on the same basis.

Interest on the funding attributable to major capital projects is capitalised during the period of construction and depreciated as part of

the total cost over the useful life of the asset.

The accounting policy for foreign exchange translation of monetary assets and liabilities is described on page 290  and for lease

liability charges on page 297 .

Taxation (note 10)

Taxation on the profit for the year comprises current and deferred tax. Taxation is recognised in the income statement unless it relates to

items recognised directly in equity, in which case it is recognised in other comprehensive income.

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the

balance sheet date, and any adjustment to tax payable in respect of previous years.

Deferred tax is calculated using the balance sheet liability method, providing for temporary differences between the carrying amounts of

assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The following temporary differences are

not provided for: goodwill not deductible for tax purposes, the initial recognition of assets or liabilities other than in business combinations

that affect neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the extent that they will probably

not reverse in the foreseeable future. The amount of deferred tax provided is based on the expected manner of realisation or settlement of

the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date.

Deferred tax assets and liabilities are offset where there is a legally enforceable right of offset within the same tax authority and where

the Group intends to either settle them on a net basis, or to realise the asset and settle the liability simultaneously. A deferred tax asset is

recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred

tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

294 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A1. Basis of consolidation and significant accounting policies continued

A1.2 Significant accounting policies continued

Business Combinations (note 12)

The acquisition of subsidiaries, and joint operations that meet the definition of a business, is accounted for under the acquisition method

as defined by IFRS 3 “Business Combinations”.

The cost of acquisition is measured as being the aggregate fair value of consideration to be transferred at the date control is obtained.

Goodwill is measured at the acquisition date as the fair value of consideration transferred, plus non-controlling interests, less the net

recognised amount (which is generally fair value) of the identifiable assets and liabilities assumed. Goodwill is subject to an annual review

for impairment (or more frequently if necessary) in accordance with the Group’s impairment accounting policy.

Contingent consideration is classified as a liability and subsequently re-measured through the income statement. Acquisition costs are

expensed as incurred.

Changes in ownership that do not result in a change of control are accounted for as equity transactions.

Held for disposal assets and liabilities and discontinued operations (note 12)

Non-current assets are classified as held for disposal if their recoverable value is likely to be recovered via a sale or distribution as opposed to

continued use by the Group. In order to be classified as assets held for disposal, assets must meet all of the following conditions; the disposal

is highly probable, it is available for immediate disposal, it is being actively marketed and the disposal is likely to occur within one year.

Assets that qualify as held for disposal and related liabilities are disclosed separately from other assets and liabilities in the balance sheet

prospectively from the date of classification. Non-current assets determined as held for disposal are measured at the lower of carrying

value and fair value less costs to sell, no depreciation is charged in respect of these assets after classification as held for disposal.

Assets or groups of assets and related liabilities that qualify as held for disposal are classified as discontinued operations when they

represent a separate major line of business or geographical area, are part of a single plan to dispose of a separate major line of business

or geographical area or are acquired exclusively with a view to resale. Income and expenses relating to these discontinued operations

are disclosed in a single net amount after taxes in the income statement, with comparative amounts re-presented accordingly.

Intra-Group balances and any unrealised gains and losses or income and expenses arising from trading between continuing and

discontinued operations continue to be eliminated in preparing the consolidated financial statements.

Intangible assets (note 13)

Goodwill and impairment testing

Goodwill arising on a business combination represents the excess of the cost of acquisition over the Group’s interest in the fair value of the identifiable

assets, liabilities and contingent liabilities of a subsidiary, associate or joint venture at the date of acquisition. Following initial recognition,

goodwill is measured at cost less any accumulated impairment losses. Goodwill is reviewed for impairment at least on an annual basis.

For the purpose of impairment testing, goodwill is allocated on initial recognition to those cash-generating units (CGUs) expected to

benefit from the combination’s synergies. The cash-generating units used for goodwill impairment testing purposes will represent how

goodwill was attributed but may not represent reportable business segments.

Goodwill may also arise upon investments in joint arrangements and associates. Goodwill arising on a joint operation is recorded as a

separate asset and any impairment loss is recognised in the income statement. Goodwill arising on a joint venture or associate is recorded

within the carrying amount of the Group’s investment and any impairment loss is included within the share of result from joint ventures and

associates. On disposal or closure of a previously acquired investment or business, any attributed goodwill will be included in determining

the profit or loss on disposal.

Allowances and certificates

Allowances and certificates consist of purchased carbon emissions allowances and generated or purchased obligations certificates.

These allowances and certificates will be utilised in settlement of environmental obligations incurred by the Group’s Generation and

Business and Domestic Energy Supply businesses.

The EU Emissions Trading Scheme (EU ETS) has been in operation since 1 January 2005, with the Group operating under the established

EU ETS carbon pricing system since that date. Since 1 January 2021, following Brexit, the UK Government has established a UK Emissions

Trading Scheme (UK ETS) to replace the EU ETS with the Group’s UK generation assets now operating under the UK ETS carbon pricing

system. Carbon allowances purchased are recorded at cost within intangible assets. Forward carbon contracts are measured at fair value

with gains or losses arising on re-measurement being recognised in the income statement. A liability is recognised based on the level

of emissions recorded. Up to the level of allowances held, including forward carbon contracts, the liability is measured at the cost of

purchase. When the carbon emission liability exceeds the carbon allowances held, the difference is measured at market value selling

price. Subsequent movements in market value are prospectively recognised in operating profit.

The carbon allowance intangible asset is surrendered at the end of the compliance period to the extent requested reflecting the

consumption of the economic benefit and is recorded as being utilised. As a result, no amortisation is booked but an impairment

charge may be recognised should the carrying value of allowances exceed market or fair value.

295SSE plc Annual Report 2022

Under the Renewable Obligations Certificates (ROCs) scheme, certificates obtained from own generation are awarded by a third party,

Ofgem. ROCs can be traded with third parties and are ultimately used by suppliers to demonstrate to Ofgem that they have met their

obligation to source a set proportion of the electricity they supply from renewable sources. The value of a ROC to a supplier comprises

two elements: the “buy-out” price which is set annually in advance of the compliance period by Ofgem; and the “recycle” price which

is determined after the compliance period by Ofgem. The recycle price element is estimated at the balance sheet date based on

assumptions at that point in time around likely levels of renewable generation and supply over the remaining compliance period,

and is therefore subject to possible future variation.

Where ROCs are self-generated or purchased to fulfil the Group’s liability under the renewables obligation, they are recorded at market

value at the point of generation or purchased within intangible assets. Following disposal of the Group’s Energy Services business in

January 2020, the Group now holds ROCs in excess of the Group’s renewables obligation. Due to limited evidence of liquidity or net

settlement for ROC trades, we have determined that any purchased ROCs in excess of the Group’s renewables obligation are recorded

at the lower of cost or net realisable value within inventories. Similarly, the fair value of any forward contracts entered into at the balance

sheet date for the purchase or sale of ROCs in future periods are not recognised, as there is insufficient liquidity for net settlement. The

Group’s liability under the renewables obligation is recognised based on electricity supplied to customers, the obligation level set by

Ofgem and the prevailing market price.

The intangible assets are surrendered at the end of the compliance period reflecting the consumption of economic benefit and release

of the associated liability. As a result, no amortisation is recorded during the period.

Research and development

Expenditure on research activities is charged to the income statement as incurred.

Expenditure on development activities is capitalised as intangible assets if the project or process is considered to be technically and

commercially feasible and the Group intends to complete the project or process for use or for sale. Development projects include wind

farm developments, thermal generation and gas storage projects, prospective gas production assets and other developments relating to

proven technologies. Costs incurred in bringing these projects to the consent stage include options over land rights, planning application

costs and environmental impact studies and may be costs incurred directly or part of the fair value exercise on acquisition of an interest

in a project. At the point that the project reaches the consent stage and is approved by the Board, the carrying value of the project is

transferred to property, plant and equipment as assets under construction. Once in operation, depreciation will be charged over the

expected useful life of the asset. The asset is derecognised on disposal, or when no future economic benefits are expected toarise.

Other intangible assets

Other intangible assets that have been acquired separately by the Group are stated at cost less accumulated amortisation and

impairment losses. Expenditure on internally generated brands or customer lists are expensed as incurred. Expenditure on internally

developed software assets and application software licences includes contractors’ fees and directly attributable labour and overheads.

Amortisation is charged to the income statement on a straight-line basis over the estimated useful life of these assets. The amortisation

periods utilised are as follows:

Years

Brands 10

Customer lists Contract term

Developed software assets and application software licences 3-15

The useful lives of all the intangible assets are reviewed annually and amended, as required, on a prospective basis. Intangible assets are

derecognised on disposal, or when no future economic benefits are expected from their use.

Property, plant and equipment (note 14)

Owned assets

Items of property, plant and equipment are stated at cost less accumulated depreciation and impairments. The cost of self-constructed

assets includes the cost of materials, direct labour and other directly attributable costs. Where the asset is a qualifying asset, for which a

considerable period of time is required to prepare the asset for use or sale, borrowing costs will be capitalised as part of the asset’s cost.

Where an item of property, plant and equipment comprises major components having different useful lives, the components are accounted

for as separate items of property, plant and equipment, and depreciated accordingly. An item of property, plant and equipment is

derecognised on disposal or when no future economic benefits are expected to arise from the continued use of the asset.

296 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A1. Basis of consolidation and significant accounting policies continued

A1.2 Significant accounting policies continued

Right of use assets

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement

of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease

payments made at or before the commencement date less any lease incentives received. Where a modification to a lease agreement

decreases the scope of the lease, the carrying amount of the right of use asset is adjusted and a gain or loss is recognised in proportion to

the decrease in scope of the lease. All other modifications to lease agreements are accounted for as a reassessment of the lease liability

with a corresponding adjustment to the right of use asset.

Hydro civil assets

The Group is obliged under the Reservoirs Act 1975 to maintain its hydro infrastructure network, including its dams, tunnels and other

hydro civil engineering structures (hydro civil assets). All items of property, plant and equipment within hydro civil assets, with the

exception of land, are subject to depreciation.

In accordance with the transition provisions of IFRS 1 “First-time Adoption of IFRS”, the Group identified the carrying value of these assets

at privatisation and has treated this value as deemed cost. Following this assessment, the assets, and all subsequent enhancement and

replacement expenditure, has been subject to depreciation over a useful economic life of 75 years. All subsequent maintenance

expenditure is chargeable directly to the income statement.

Depreciation

Depreciation is charged to the income statement to write off cost, less residual values, on a straight line basis over their estimated useful

lives. Heritable and freehold land is not depreciated. Depreciation policy, useful lives and residual values are reviewed at least annually, for

all asset classes to ensure that the current method is the most appropriate. Depreciation commences following the asset commissioning

period and when the asset is available for commercial operation. The estimated useful lives for assets depreciated on a straight line basis

are as follows:

Years

Wholesale specific assets

Hydro civil assets (classified within Renewable power generation assets) 75 to 100

Thermal and hydro power stations including electrical and mechanical assets (classified within Thermal power

generation assets) 20 to 60

Onshore wind farms (classified within Renewable power generation assets) 20 to 25

Offshore wind farms (classified within Renewable power generation assets) 20 to 25

Gas storage facilities (classified within other assets) 25 to 50

Overhead lines, underground cables and other network assets (classified within Distribution or Transmission network

assets) 5 to 80

Office buildings (classified within land & buildings) 30 to 40

Fixtures, IT assets, vehicles and mobile plant (classified within other assets) 3 to 15

Assets held under leases are depreciated over their expected useful lives on the same basis as owned assets or, where shorter, over the

term of the relevant lease agreement.

Subsequent expenditure

It is the Group policy to capitalise qualifying replacement expenditure and depreciate it over the expected useful life of the replaced

asset. Replaced assets are derecognised at this point and the costs recorded as costs of disposal. Where an item of property, plant and

equipment is replaced and it is not practicable to determine the carrying amount of the replaced part, the cost of the replacement

adjusted for inflation will be used as an approximation of the cost of the replaced part at the time it was acquired or constructed.

Expenditure incurred to replace a component of an item of property, plant and equipment that is accounted for separately is capitalised.

Other subsequent expenditure is capitalised only when it increases the future economic benefits of the item of property, plant and

equipment to which it relates. Maintenance and repair costs are expensed as incurred.

Derecognition

An item of property, plant or equipment is derecognised upon disposal or when no future economic benefits are expected to arise from

the continued use of the asset. Gains and losses on disposals are determined by comparing the proceeds received with the carrying

amount of the asset and are included in the income statement. Any gain or loss on derecognition of the asset is included in the income

statement in the period of derecognition.

297SSE plc Annual Report 2022

Lease arrangements (note 21)

Lease arrangements are separately distinguished from service contracts on the basis of whether the contract conveys the right to control

the use of an identified asset for a period of time in exchange for consideration. If the Group is deemed to control the use of an identified

asset, a right of use asset and a corresponding lease liability are recognised on the balance sheet.

Right of use assets are capitalised and held as part of property, plant and equipment. The accounting policy for such arrangements is

described on page 296 .

Lease liabilities are initially measured at the present value of the future lease payments discounted using the rate implicit in the lease if

that can be readily determined. If the interest rate implicit in the lease cannot be readily determined the incremental borrowing rate is

used. Where the interest rate implicit in the lease is not readily determinable, the Group has applied the intercompany borrowing rate

which is based on the Group’s external medium-term borrowing rates with premia adjustments for any subsidiary specific risk factors.

In determining whether any break and/or extension clauses should be included within the lease term, the Group has considered that

where an internal decision has been made to break or extend the lease agreement, that decision shall be applied in determining the

appropriate lease term. Where an internal decision has not been made, and where the non-cancellable element of the lease term has

longer than five years remaining, it is considered that any clauses will not be triggered as any decision beyond that date is not reasonably

certain. For all leases with less than five years remaining, an assessment is made at each reporting period on a lease-by-lease basis on

whether the clause is reasonably certain to be triggered. Reassessment of break and/or extension judgements made in prior periods

could result in recalculation of the lease liability and adjustments to associated balances.

The lease liability is subsequently adjusted for unwind of discounting, repayments and other modifications to the underlying agreement.

Lease modifications are accounted for as a separate lease where the scope of the lease increases through the right to use one or more

underlying assets and where the consideration of the lease increases by an amount that is equivalent to the standalone price of the

increase in scope. Where a modification decreases the scope of the lease, the carrying amount of the right of use asset is adjusted and a

gain or loss is recognised in proportion to the decrease in scope of the lease. All other modifications are accounted for as a reassessment

of the lease liability with a corresponding adjustment to the right of use asset.

Leases with a duration of 12 months or less and leases for assets which are deemed “low value” are expensed to the income statement

on a straight-line basis over the lease term.

Impairment review (note 15)

The carrying amounts of the Group’s PP&E and other intangible assets and the Group’s investments in joint ventures and associates,

are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable,

or where there are indications that a previously recognised impairment loss has reduced. For PP&E assets that have previously been

identified as exhibiting indications of impairment, the review of impairment will be performed annually until there is sufficient evidence

to confirm that any potential impairment loss has been appropriately recognised, or until previously recognised impairment losses have

been fully written back. For goodwill and other intangible assets with an indefinite life or which are not yet ready for use, the test for

impairment is carried out annually. In addition, financial assets measured at amortised cost are also reviewed for impairment annually.

For assets subject to impairment testing, the asset’s carrying value is compared to the asset’s (or cash-generating unit (CGU)’s, in the

case of goodwill), recoverable amount. The recoverable amount is determined to be the higher of the fair value less costs to sell (FVLCS)

and the value-in-use (VIU) of the asset or CGU. For financial assets measured at amortised cost the impairment is measured as the

difference between the asset’s carrying amount and the present value of estimated future cash flows discounted at the financial asset’s

original effective interest rate.

If the carrying amount of the asset or CGU exceeds its recoverable amount, an impairment charge will be recognised immediately in the

income statement. Reversals of previous impairment charges are recognised if the recoverable amount of the asset or CGU significantly

exceeds the carrying amount. Previous impairments of goodwill are not reversed.

Value in use (VIU) calculations require the estimation of future cash flows to be derived from the respective assets (or CGUs) and the

selection of an appropriate discount rate in order to calculate their present value. The VIU methodology is consistent with the approach

taken by management to evaluate economic value and is deemed to be the most appropriate for reviews of PP&E asset and the Group’s

identified goodwill-related CGUs. The methodology is based on the pre-tax cash flows arising from the specific assets, underlying assets

or CGUs, and discounted using a pre-tax discount rate based on the Group’s cost of funding and adjusted for any specific risks. The

estimation of the timing and value of underlying projected cash flows and the selection of appropriate discount rates involves

management judgement. Subsequent changes to these estimates or judgements may impact the carrying value of the assets.

The fair value less costs to sell methodology also uses a present value technique, unless there is a quoted price in an active market

for that asset. The methodology is based on the post-tax cash flows arising from the specific assets, underlying assets or CGUs, and

discounted using a post-tax discount rate determined in the same manner as the rates used in the VIU calculations, adjusted for the

relevant taxation rate.

Any impairment charge identified will initially be adjusted against the goodwill allocated to the cash-generating unit. Any excess charge

will be allocated against the remaining assets of the cash-generating unit. Reversals of previous impairment charges are allocated

against the carrying value of assets previously subject to an impairment charge.

298 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A1. Basis of consolidation and significant accounting policies continued

A1.2 Significant accounting policies continued

Inventories (note 17)

Inventories – aside from inventory purchased by the Gas Storage business for secondary trading opportunities – are valued at the lower

of cost and net realisable value. Net realisable value is the estimated selling price in the ordinary course of business, less the estimated

costs of completion and selling expenses.

Gas inventory purchased by the Gas Storage business for secondary trading opportunities is held at fair value with reference to the

forward month market price. Gains and losses on remeasurement at fair value are recognised within the Income Statement, as a “certain

remeasurement” item.

Provisions (note 20)

A provision is recognised in the balance sheet when the Group has a present legal or constructive obligation as a result of a past event,

it can be measured reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.

If the effect is material, provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current

market assessments of the time value of money and, where appropriate, the risks specific to the liability.

Decommissioning

The Group engages independent experts to estimate the cost of decommissioning its Renewable, Thermal and Gas Storage assets every

three years. In the intervening years, management updates the external valuation based on factors arising since the last formal valuation

date. Provision is made for the net present value of the estimated cost of decommissioning gas storage facilities, wind farms and power

stations at the end of the useful life of the facilities. This includes development assets, where if a present obligation exists, provision is

recognised during construction and prior to commencement of operations from the site. The estimates are based on technology and

prices at the balance sheet date and excludes any salvage value related to those assets. A corresponding decommissioning asset is

recognised and is included within property, plant and equipment when it gives access to future economic benefits, and is depreciated on

a straight-line basis over the expected useful life of the asset. Changes in these provisions are recognised prospectively. The unwinding

of the discount on the provision is included in finance costs.

The Group retained a decommissioning obligation following the disposal of its Gas Production business. The decommissioning cost

estimates are updated periodically by field operators based on current technology and prices. Field operators also provide estimated end

of field life dates for each field, which can change based on market commodity prices.

Retirement benefit obligations (note 23)

Defined benefit pension schemes

The Group operates two defined benefit pension schemes, one of which is operated by the Company. Pension scheme assets are

measured using bid market values. Pension scheme liabilities are measured using the projected unit credit actuarial method and are

discounted at the current rate of return on a high quality corporate bond of equivalent term and currency to the liability.

Any increase in the present value of liabilities within the Group’s defined benefit pension schemes expected to arise from employee

service in the year is charged as service costs to operating profit.

Net interest costs are based on net schemes’ liabilities adjusted for minimum funding requirement and pension surplus restrictions under

IFRIC 14 ‘IAS 19—The Limit on a Defined Benefit Asset, Minimum Funding Requirements and their Interaction’. Actuarial gains and losses

are recognised in full in the consolidated statement of comprehensive income. Pension scheme surpluses, to the extent that they are

considered recoverable, or deficits are recognised in full and presented on the face of the balance sheet.

299SSE plc Annual Report 2022

Defined contribution pension schemes

The Group also operates a number of defined contribution pension schemes. The assets of the schemes are held separately from those

of the Group in independently administered funds. The amounts charged represent the contributions payable to the schemes in the year

and are charged directly to the income statement.

Equity and equity-related compensation benefits

The Group operates a number of employee share schemes as described in the Remuneration Report. These schemes enable Group

employees to acquire shares of the Company.

The exercise prices of the sharesave scheme are set at a discount to market price at the date of the grant. The fair value of the sharesave

scheme option granted is measured at the grant date by use of a Black-Scholes model. The fair value of the options granted is recognised

as an expense on a straight-line basis over the period that the scheme vests. Estimates are updated for non-market conditions at each

balance sheet date with any adjustment in respect of the current and prior years being recognised in the income statement. The costs

associated with the other main employee schemes are recognised over the period to which they relate. The charge related to the equity

shares in the Company awarded under the share schemes is treated as an increase in the cost of investment held by the Company in the

subsidiary companies of the Group. The disclosures on equity and equity-related compensation benefits have been removed on the

grounds of materiality in relation to the Group.

Financial instruments (note 24)

The Group uses a range of financial instruments to hedge exposures to financial risks, such as interest rate, foreign exchange and energy

price fluctuations in its normal course of business and in accordance with the Group’s risk management policies. The Group’s risk

management policies are further explained in A6 .

As previously noted in the 31 March 2018 Annual Report, the Group’s review of the IFRS 9 hedge accounting model concluded that

whilst adoption would not change the treatment of existing hedging arrangements, the changes made would not result in any additional

hedge designations either. As such, the existing hedge accounting model under IAS 39 appropriately reflects our risk management

activities in the financial statements. Therefore, as permitted by IFRS 9, the Group has elected to continue to apply the hedge accounting

requirements of IAS 39. This policy choice will be periodically reviewed to consider any changes in our risk management activities.

Interest rate and foreign exchange derivatives

Financial derivative instruments are used by the Group to hedge interest rate and currency exposures. All such derivatives are recognised

at fair value and are re-measured to fair value each reporting period. Certain derivative financial instruments are designated as being held

for hedging purposes. The designation of the hedge relationship is established at the inception of the hedge and procedures are applied

to ensure the derivative is highly effective in achieving its objective and that the effectiveness of the hedge can be reliably measured. The

treatment of gains and losses on re-measurement is dependent on the classification of the hedge and whether the hedge relationship is

designated as either a ‘fair value’ or ‘cash flow’ hedge. Derivatives that are not designated as hedges are treated as if held for trading, with

all fair value movements being recorded through the income statement.

A derivative classified as a ‘fair value’ hedge recognises gains and losses from re-measurement immediately in the income statement. Loans

and borrowings are measured at cost except where they form the underlying transaction in an effective fair value hedge relationship. In

such cases, the carrying value of the loan or borrowing is adjusted to reflect fair value movements with the gain or loss being reported in

the income statement.

A derivative classified as a ‘cash flow’ hedge recognises the portion of gains or losses on the derivative which are deemed to be effective

directly in equity in the hedge reserve. Any ineffective portion of the gains or losses is recognised in the consolidated income statement.

When hedged cash flows result in the recognition of a non-financial asset or liability, the associated gains or losses previously recognised in

equity are included in the initial measurement of the asset or liability. For all other cash flow hedges, the gains or losses that are recognised

in equity are transferred to the income statement in the same period in which the hedged cash flows affect the incomestatement.

300 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A1. Basis of consolidation and significant accounting policies continued

A1.2 Significant accounting policies continued

Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for

hedge accounting. At the point of discontinuation, any cumulative gain or loss on the hedging instrument recognised in equity remains

in equity until the forecast transaction affects profit or loss. On settlement, the cumulative gain or loss recognised in equity is recognised

in the income statement.

Commodity derivatives

Within its regular course of business, the Group routinely enters into sale and purchase derivative contracts for commodities such as

electricity, gas, coal, carbon allowances and oil. Where the contract was entered into and continues to be held for the purpose of receipt

or delivery in accordance with the Group’s expected sale, purchase or usage requirements, the contracts are designated as ‘own use’

contracts and are measured at cost. These contracts are not within the scope of IFRS 9.

Derivative commodity contracts which are not designated as own use contracts are accounted for as trading derivatives and are

recognised in the balance sheet at fair value. Where a hedge accounting relationship is designated and is proven to be effective, the

changes in fair value will be recognised in accordance with the rules noted above. There are currently no designated hedge relationships

in relation to commodity contracts.

Other commodity contracts, where own use is not established and a hedge accounting relationship is not designated, are measured at

fair value with gains and losses on re-measurement being recognised in the income statement in cost of sales.

Embedded derivatives

Derivatives embedded in other financial instruments or other host contracts are treated as separate derivatives where the characteristics

of the derivatives are not closely related to those of the host contracts.

Net investment hedges

Hedges of net investments in foreign operations are accounted in a manner similar to effective cash flow hedges. Any gain or loss on the

effective portion of the hedge is recognised in equity, in the translation reserve, and any gain or loss on the ineffective portion of the

hedge is recognised in the income statement. On disposal of the foreign operation, the cumulative value of any gains or losses

recognised directly in equity is transferred to the income statement.

Cash and cash equivalents

Cash and cash equivalents comprise cash balances and call deposits. Bank overdrafts that are repayable on demand and form an integral

part of the Group’s cash management are included as a component of cash and cash equivalents for the purpose of the statement of

cash flows.

Trade receivables

Trade receivables do not carry any interest and are measured at cost less an appropriate allowance for lifetime expected credit losses.

Interest-bearing loans and borrowings

All such loans and borrowings are initially recognised at fair value including transaction costs and are subsequently measured at

amortised cost, except where the loan or borrowing is the hedged item in an effective fair value hedge relationship.

Share capital

Ordinary shares are accounted for as equity. Incremental costs directly attributable to the issue of new shares are shown in equity as a

deduction from the proceeds received. Own equity instruments that are reacquired are deducted from equity. No gain or loss is recognised

in the Group Income Statement on the purchase, sale, issue or cancellation of the Group’s own equity instruments.

Hybrid equity

Hybrid equity comprises issued bonds that qualify for recognition as equity. Accordingly, any coupon payments are accounted for as

dividends and are recognised directly in equity at the time the payment obligation arises. This is because the coupon payments are

discretionary and relate to equity. Coupon payments consequently do not have any impact on the income statement. Coupon payments

are recognised in the cash flow statement in the same way as dividends to ordinary shareholders. Tax credits in relation to the coupon

payments are linked to the past transactions or events that support the coupon payments and consequently the tax credits are reported

in the income statement.

Hybrid debt

Hybrid debt comprises issued bonds that have a fixed redemption date and are accounted within Loans and Borrowings. Coupon

payments are recognised within the income statement as a finance cost.

301SSE plc Annual Report 2022

A2. Taxation

The Group’s primary tax disclosures are included at note 10. The following tables represent enhanced disclosures adopted in order to

assist stakeholder understanding of the Group’s tax position and policies as part of the Group’s commitment to its Fair Tax Mark

accredited status.

Reconciliation of tax charge to adjusted underlying current tax

2022

£m

2022

2021

£m

(restated*)

2021

Group profit before tax 3,482.2 2,418.0

Less: share of results of associates and jointly controlled entities (109.8) (43.4)

Profit before tax 3,372.4 2,374.6

Tax on profit on ordinary activities at standard UK corporation tax rate of

19% (2021: 19%) 640.8 19.0 451.2 19.0

Tax effect of:

Capital allowances less than depreciation (121.6) (3.6) 10.8 0.4

Increase in restructuring and settlement provisions 1.1 – (5.6) (0.2)

Non-taxable gain on sale of assets (14.8) (0.4) (229.1) (9.6)

Fair value movements on derivatives (393.8) (11.7) (116.1) (4.9)

Pension movements (5.8) (0.2) (5.9) (0.2)

Relief for capitalised interest and revenue costs (22.7) (0.7) (19.3) (0.8)

Hybrid equity coupon payments (9.7) (0.3) (8.9) (0.4)

Expenses not deductible for tax purposes 35.3 1.0 9.7 0.4

Utilisation of tax losses brought forward (6.2) (0.2) (2.1) (0.1)

Other items 0.4 – 5.6 0.2

Impact of foreign tax rates (6.2) (0.2) – –

Permanent benefit of super-deduction capital allowances (6.0) (0.2) – –

Adjustments to tax charge in respect of previous years (5.9) (0.2) (11.4) (0.5)

Reported current tax charge and effective rate 85.4 2.5 78.9 3.2

Depreciation in excess of capital allowances 129.4 3.8 (2.8) (0.1)

Increase in provisions (1.1) – 5.6 0.2

Fair value movements on derivatives 393.3 11.7 116.1 4.9

Pension movements 5.8 0.2 5.9 0.2

Relief for capitalised interest and revenue costs 22.7 0.7 19.3 0.8

Impact of higher deferred tax rates on Gas Production profits – – 1.2 0.1

Impact of foreign tax rates 0.1 –

Adjustments to tax charge in respect of previous years (2.2) (0.1) (1.9) (0.1)

Change in rate of UK corporation tax 244.7 7.3 – –

Tax losses utilised 6.0 0.2 2.1 0.1

Other items (1.3) – (0.1) –

Reported deferred tax credit and effective rate 797.4 23.6 145.4 6.1

Group tax charge and effective rate 882.8 26.2 224.3 9.4

As noted at note 3 to the accounts, the Group’s results are reported on an ‘adjusted’ basis in order to allow focus on underlying business

performance. The following table explains the adjustments that are made in order to arrive at adjusted profit before tax. This is the

measure utilised in calculation of the Group’s ‘adjusted effective rate of tax’.

2022

£m

2021

£m

(restated*)

Profit before tax 3,482.2 2,418.0

Add/(less):

Exceptional items and certain re-measurements (2,390.6) (1,503.7)

Share of tax from jointly controlled entities and associates before exceptional items and

certain re-measurements 46.3 22.3

Depreciation charge on fair value uplifts 20.6 20.6

Adjustment to Gas Production decommissioning provision 13.1 –

Interest income/(charge) on pension scheme assets/(liabilities) (7.6) (8.3)

Adjusted profit before tax

APM

1,164.0 948.9

302 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A2. Taxation continued

Reconciliation of tax charge to adjusted underlying current tax continued

The adjusted current tax charge can therefore be reconciled to the adjusted profit before tax as follows:

2022

£m

2022

2021

£m

2021

Adjusted profit before tax 1,164.0

Tax on profit on ordinary activities at standard UK corporation tax rate 221.2 19.0 180.3 19.0

Tax effect of:

Capital allowances in excess of depreciation (80.3) (6.9) (31.4) (3.3)

Non-taxable gain on sale of assets (9.5) (0.8) (47.7) (5.0)

Non-qualifying depreciation 12.0 1.0 10.6 1.1

Adjustment for profit on internal trading 1.7 0.1 1.9 0.2

Increase in restructuring and settlement provisions 1.1 0.1 (2.7) (0.3)

Pension movements (5.8) (0.5) (6.8) (0.7)

Relief for capitalised interest and revenue costs (9.9) (0.9) (4.8) (0.5)

Hybrid equity coupon payments (9.7) (0.8) (8.9) (0.9)

Expenses not deductible for tax purposes 4.2 0.4 4.4 0.5

Permanent benefit of super-deduction capital allowances (6.1) (0.5) – –

Losses carried back to earlier years (0.8) (0.1) 1.7 0.2

Adjustments to tax charge in respect of previous years (6.7) (0.6) (12.0) (1.3)

Impact of foreign tax rates (5.7) (0.5) – –

Other 1.4 0.2 1.3 0.1

Adjusted current tax charge and effective rate

APM

107. 1 9.2 85.9 9.1

The above reconciling adjustments differ from those analysed in the Group tax charge reconciliation above because they include SSE’s

share of associates and joint ventures, and are based on adjusted profit before tax.

The majority of the Group’s profits are earned in the UK, with the standard rate of UK corporation tax being 19% for the year to 31 March

2022 (2021: 19%). The Group’s Gas Production business, which is presented as a discontinued operation in the current year (until the

business was disposed on 14 October 2021) and prior year, is taxed at a UK corporation tax rate of 30% plus a supplementary charge of

10% (combined 40%). Profits earned by the Group in the Republic of Ireland are taxable at either 12.5% or 25%, depending upon the nature

of the income.

Capital allowances are tax reliefs provided in law for the expenditure the Group makes on property, plant and equipment. The rates are

determined by Parliament annually and spread the tax relief due over a number of years. This contrasts with the accounting treatment for

such spending, where the expenditure on property, plant and equipment is treated as an asset with the cost being depreciated over the

useful life of the asset, or impaired if the value of such assets is considered to have reduced materially.

The different accounting treatment of property, plant and equipment for tax and accounting purposes means that the taxable income

of the Group is not the same as the profit reported in the financial statements. The substantial reversals of impairments and impairments

undertaken in previous years in relation to certain property, plant and equipment assets, result in the depreciation or impairment charge

to profit for the year differing to the amount of capital allowances due to the Group.

Short term temporary differences arise on items such as provisions for restructuring costs and onerous contracts, and retirement benefit

obligations, because the treatment of such items is different for tax and accounting purposes. These differences usually reverse in the

year following that in which they arise, as is reflected in the deferred tax charge in these financial statements. Where interest charges

or other costs are capitalised in the accounts, tax relief is either given as the charges are incurred or when the costs are taken to the

income statement.

As explained at Accompanying Information A1 and A6 , the Group measures its operating and financing derivatives at fair value under

IFRS 9. As a result of the Group’s subsidiaries applying the HMRC’s “disregard regulations”, the re-measurement movements have no

current tax effect impacting only the deferred tax position.

As detailed at note 22 and explained in the Accompanying Information A1 , the Group has issued Hybrid equity securities which are

treated as a component of equity. While the coupon payments relating to these securities are treated as distributions to the holders of

the equity instruments, tax relief is allowed on the amount paid in the year. These tax credits are linked to the past transactions or events

that support the coupon payments and consequently the tax credits are reported in the income statement.

303SSE plc Annual Report 2022

A3. Related undertakings

A3.1.1. Subsidiary undertakings

Details of the Group’s subsidiary undertakings at 31 March are as follows:

Company Country of incorporation

Registered

address (key)

2022

Holding

2021

Holding

% Principal activity

Abernedd Power Company Limited England and Wales B

100.0

100.0 Holding Company

Aichi Offshore Wind Power No. 1 G.K. Japan AJ

80.0

– Renewable Development

Aichi Offshore Wind Power No. 2 G.K. Japan AJ

80.0

– Renewable Development

Airtricity Windfarm Finance Limited Ireland C

100.0

100.0 Holding Company

Arklow Offshore Phase II Company Limited Ireland C

100.0

100.0 Dormant

Beithe (HK) Limited Hong Kong AF

100.0

100.0 Holding Company

Beithe AG Switzerland Z

100.0

100.0 Holding Company

Berwick Bank A Limited (formerly Berwick

Bank Wind Limited)

England and Wales B

100.0

100.0 Power Generation

Berwick Bank Holdings A Limited (formerly

Berwick Bank Wind Holdings Limited)

England and Wales B

100.0

100.0 Holding Company

Berwick Bank B Limited England and Wales B

100.0

– Renewable Development

Berwick Bank Holdings B Limited England and Wales B

100.0

– Holding Company

Berwick Bank C Limited

(formerly Marr Bank Wind Limited)

England and Wales B

100.0

100.0 Power Generation

Berwick Bank Holdings C Limited (formerly

Marr Bank Wind Holdings Limited)

England and Wales B

100.0

100.0 Holding Company

Berwick Bank Wind Farm Limited England and Wales B

100.0

– Renewable Development

Bhlaraidh Wind Farm Limited Scotland A

100.0

100.0 Power Generation

Bindoo Windfarm (ROI) Limited Ireland C

100.0

100.0 Power Generation

Brickmount Limited Ireland C

100.0

100.0 Power Generation

Building Automation Solutions Limited England and Wales D

100.0

100.0 Dormant

Coire Glas Hydro Pumped Storage Limited Scotland A

100.0

100.0 Power Generation

Comhlacht Gaoithe Teoranta Ireland C

100.0

100.0 Power Generation

Coomacheo Wind Farm Limited Ireland C

100.0

100.0 Power Generation

Coomatallin Windfarm (ROI) Limited Ireland C

100.0

100.0 Power Generation

Curragh Mountain Windfarm Limited Ireland C

100.0

100.0 Power Generation

Dedondo Limited Ireland C

100.0

100.0 Power Generation

Dromada Windfarm (ROI) Limited Ireland C

100.0

100.0 Power Generation

Drumnahough Wind Farm Designated

Activity Company

Ireland C

100.0

100.0 Power Generation

Enshunada Offshore Wind Power No. 1 G.K. Japan AJ

80.0

– Renewable Development

Fibre Fuel Limited England and Wales B

100.0

100.0 Dormant

Fibre Power (Slough) Limited England and Wales B

100.0

100.0 Power Generation

Fusion Heating Limited Northern Ireland W

100.0

100.0 Energy Related Services

Galway Wind Park Phase 3 Designated

Activity Company

Ireland C

100.0

100.0 Renewable Development

Ganderoy Limited Ireland C

100.0

100.0 Power Generation

Gartnaneane Limited Ireland C

100.0*

100.0* Power Generation

Glenora Wind Farm Designated Activity Company Ireland C

100.0

– Renewable Development

Goto-Fukue Offshore Wind Power G.K. Japan AJ

80.0

– Renewable Development

Green Wind Energy (Wexford) Limited Ireland C

100.0*

100.0* Renewable Development

Griffin Wind Farm Limited Scotland A

100.0

100.0 Power Generation

Hadyard Hill Wind Farm Limited Scotland A

100.0

100.0 Power Generation

Hydro Electric Pension Scheme Trustees Limited Scotland A

100.0

100.0 Dormant

Izu Islands Offshore Wind Power No. 1 G.K. Japan AJ

80.0

– Renewable Development

Keadby Developments Limited England and Wales B

100.0

100.0 Dormant

Keadby Generation Limited England and Wales E

100.0

100.0 Power Generation

Keadby Wind Farm Limited England and Wales B

100.0

100.0 Power Generation

Leanamore Wind Farm Limited Ireland C

100.0

100.0 Power Generation

Lenalea Wind Farm Designated Activity Company Ireland C

100.0

100.0 Renewable Development

Limerick West Windfarm Limited Ireland C

100.0

100.0 Power Generation

Littleton Pastures Solar Limited England and Wales B

100.0

– Power Generation

March Winds Limited Ireland C

100.0

100.0 Power Generation

Medway Power Limited England and Wales B

100.0

100.0 Power Generation

Meentycat Limited Ireland C

100.0

100.0 Power Generation

Milane Holdings Limited Ireland C

100.0

100.0 Dormant

Minami-Izu Offshore Wind Power No. 1 G.K. Japan AJ

80.0

– Renewable Development

Mullananalt Wind Farm (ROI) Limited Ireland C

100.0

100.0 Power Generation

304 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

Company Country of incorporation

Registered

address (key)

2022

Holding

2021

Holding

% Principal activity

Niigata Offshore Wind Power No.1 G.K. Japan AJ

80.0

– Renewable Development

Oki Islands Offshore Wind Power G.K. Japan AJ

80.0

– Renewable Development

Optimal Power Networks Limited (formerly

Forbury Assets Limited)

England and Wales B

100.0

100.0 Construction

of utility projects

Platin Power Limited Ireland C

100.0

100.0 Dormant

Power from Waste Limited England and Wales B

100.0

100.0 Dormant

Richfield Windfarm (ROI) Limited Ireland C

100.0

100.0 Power Generation

Scottish and Southern Energy Power

Distribution Limited

Scotland A

100.0

100.0 Holding Company

Scottish Hydro Electric Power Distribution plc Scotland A

100.0

100.0 Power Distribution

Scottish Hydro Electric Transmission plc Scotland A

100.0

100.0 Power Transmission

Sheskin South Renewables Power Designated

Activity Company

Ireland C

100.0

– Renewable Development

Slough Domestic Electricity Limited England and Wales B

100.0

100.0 Dormant

Slough Electricity Contracts Limited England and Wales B

100.0

100.0 Electricity Contracting

Slough Energy Supplies Limited England and Wales B

100.0

100.0 Dormant

Slough Heat & Power Limited England and Wales B

100.0

100.0 Power Generation

Slough Utility Services Limited England and Wales B

100.0

100.0 Distribution of Electricity

Southern Electric Power Distribution plc England and Wales B

100.0

100.0 Power Distribution

SSE Airtricity Limited Ireland C

100.0

100.0 Energy Supply

SSE Airtricity Distributed Energy Limited Ireland C

100.0

100.0 Power Distribution

SSE Airtricity Energy Services (NI) Limited Northern Ireland F

–

100.0 Energy Supply

SSE Airtricity Energy Services Limited Ireland C

100.0

100.0 Energy Supply

SSE Airtricity Energy Supply (NI) Limited Northern Ireland F

100.0

100.0 Energy Supply

SSE Airtricity Gas Limited Ireland C

100.0

100.0 Energy Supply

SSE Airtricity Gas Supply (NI) Limited Northern Ireland F

100.0

100.0 Energy Supply

SSE Airtricity Utility Solutions Limited Ireland C

–

100.0 Utility Contracting

SSE Battery Salisbury Limited England and Wales B

100.0

– Power Generation

SSE Beatrice Offshore Windfarm Holdings Limited Scotland A

100.0

100.0 Holding Company

SSE Contracting Group Limited England and Wales B

100.0

100.0 Holding Company

SSE Contracting Limited England and Wales B

–

100.0 Contracting

SSE Cumarsáid Teoranta Ireland C

100.0

100.0 Telecommunications

SSE DE Battery Holdco Limited England and Wales B

100.0

– Holding company

SSE E&P UK Limited Scotland A

–

100.0 Gas Production

SSE Energy Supply Limited England and Wales B

100.0

100.0 Energy Supply

SSE Enterprise Limited England and Wales B

100.0

100.0 Corporate Services

SSE EPM Limited England and Wales B

100.0

100.0 Energy Trading

SSE Galloper Offshore Windfarm

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 Insurance Limited Isle of Man G

100.0

100.0 Insurance

SSE Maple Limited England and Wales B

100.0

100.0 Investment Holding

SSE Medway Operations Limited England and Wales B

100.0

100.0 Holding Company

SSE Micro Renewables Limited Scotland A

100.0

100.0 Energy Related Services

SSE Multifuel Generation Holdings Limited England and Wales B

100.0

100.0 Holding Company

SSE OWS Glasgow Limited Scotland A

100.0

100.0 Property Holding

SSE Pacifico K.K. Japan AJ

80.0

– Renewable Development

SSE Production Services Limited England and Wales B

100.0

100.0 Maintenance Services

SSE Renewables (Ireland) Limited Ireland C

100.0

100.0 Holding Company

SSE Renewables Developments (Germany) GmbH Germany AA

100.0

100.0 Renewable Development

SSE Renewables Generation Ireland Limited Ireland C

100.0

100.0 Power Generation

SSE Renewables Holdings (Europe) Limited Ireland C

100.0

100.0 Holding Company

SSE Renewables Holdings (UK) Limited Northern Ireland F

100.0

100.0 Holding Company

SSE Renewables Holdings Germany GmbH Germany H

100.0

100.0 Dormant

SSE Renewables Holdings Limited Ireland C

100.0

100.0 Holding Company

SSE Renewables International Holdings Scotland A

100.0

100.0 Holding Company

A3. Related undertakings continued

A3.1.1. Subsidiary undertakings continued

305SSE plc Annual Report 2022

Company Country of incorporation

Registered

address (key)

2022

Holding

2021

Holding

% Principal activity

SSE Renewables Limited Scotland A

100.0

100.0 Holding Company

SSE Renewables (Netherlands) Holdings B.V. Netherlands AL

100.0

– Holding Company

SSE Renewables North America Inc. United States AH

100.0

– Renewable Development

SSE Renewables North America Offshore

Wind LLC.

United States AH

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

– Holding Company

SSE Renewables Poland sp z.o.o. (formerly

Virtomille Investments sp z.o.o.)

Poland AI

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

SSE Renewables Wind Farms (Ireland) Limited Ireland C

100.0

100.0 Power Generation

SSE Renewables Wind Farms (UK) Limited Scotland A

100.0

100.0 Power Generation

SSE Retail Limited Scotland A

100.0

100.0 Energy Related Services

SSE Seabank Investments Limited England and Wales B

100.0

100.0 Dormant

SSE Seabank Land Investments Limited England and Wales B

100.0

100.0 Dormant

SSE Services plc England and Wales B

100.0

100.0 Corporate Services

SSE Southern Group Trustee Limited England and Wales B

100.0

100.0 Dormant

SSE Stock Limited Scotland A

100.0

100.0 Stock Holding

SSE Sunflower Offshore Wind Holdco B.V. Netherlands AL

100.0

– Renewable Development

SSE Thermal Energy Holdings Limited England and Wales B

100.0

100.0 Holding Company

SSE Thermal Energy Operations Limited England and Wales B

100.0

100.0 Power Generation

SSE Thermal Generation (Scotland) Limited Scotland A

100.0

100.0 Power Generation

SSE Thermal Generation Holdings Limited England and Wales B

100.0

100.0 Holding Company

SSE Toddleburn Limited Scotland A

100.0

100.0 Power Generation

SSE Trading Limited England and Wales B

100.0

100.0 Energy Trading

SSE Tulip Offshore Wind Holdco B.V. Netherlands AL

100.0

– Renewable Development

SSE Trustees Limited England and Wales B

100.0

100.0 Dormant

SSE Utility Services Limited England and Wales B

100.0

100.0 Dormant

SSE Utility Solutions Limited England and Wales B

100.0

100.0 Utility Services

SSE Venture Capital Limited Scotland A

100.0

100.0 Investment Holding

SSE Viking Limited England and Wales B

100.0

100.0 Renewable Development

SSE(SE) Quest Trustee Limited England and Wales B

100.0

100.0 Dormant

SSEPG (Operations) Limited England and Wales B

100.0

100.0 Power Generation

Strathy Wind Farm Limited Scotland A

100.0

100.0 Power Generation

Sure Partners Limited Ireland C

100.0

100.0 Renewable Development

Tealing Solar Park Limited England and Wales B

100.0

100.0 Power Generation

TESGL Limited England and Wales D

100.0

100.0 Building Energy

Management

The Energy Solutions Group Bidco Limited England and Wales D

100.0

100.0 Dormant

The Energy Solutions Group Midco Limited England and Wales D

100.0

100.0 Dormant

The Energy Solutions Group Topco Limited England and Wales D

100.0

100.0 Dormant

Tournafulla Windfarm (ROI) Limited Ireland C

100.0

100.0 Power Generation

Viking Energy (Scottish Partnership) Scotland I

100.0

100.0 Renewable Development

Viking Energy Wind Farm LLP Scotland AK

100.0

100.0 Renewable Development

Wakayama-West Offshore Wind Power No. 1 G.K. Japan AJ

80.0

– Renewable Development

Wakayama-West Offshore Wind Power No.2 G.K. Japan AJ

80.0

– Renewable Development

All shares in subsidiary companies are ordinary share capital, unless otherwise stated.

* 100% of voting rights held.

306 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A3. Related undertakings continued

A3.1.1. Subsidiary undertakings continued

Statutory audit exemptions

SSE plc parent company has provided guarantees under section 479C of the Companies Act 2006 over the liabilities of the following

companies, which are therefore exempt from audit under the requirements of s479A-479C of the Companies Act 2006.

Company Registered number

Fibre Power (Slough) Limited 02902170

SSE Bhlaraidh Wind Farm Limited SC663027

SSE Enterprise Limited 10060563

SSE Retail Limited 10060563

SSE Maple Limited 10604848

SSE Medway Operations Limited 02647585

SSE Micro Renewables Limited SC386017

SSE Production Services Limited 02499702

SSE Renewables Wind Farms (UK) Limited SC654502

SSE Seabank Investments Limited 02631512

Tealing Solar Park Limited 08783684

Slough Utility Services Limited 03486590

A3.1.2. Partnerships

Company Country of incorporation

Registered

address (key)

2022

Holding

2021

Holding

% Principal activity

The Glasa LLP Scotland A

–

90.0 Renewable Development

A3.1.3 Joint arrangements (incorporated)

Company Country of incorporation

Registered

address (key)

2022

Holding

2021

Holding

% Principal activity

AtlasConnect Limited Scotland A

50.0

50.0 Dormant

Baglan Pipeline Limited England and Wales L

50.0

50.0 Dormant

Beatrice Offshore Windfarm Holdco Limited Scotland A

40.0

40.0 Holding Company

Beatrice Offshore Windfarm Limited Scotland A

40.0

40.0 Power Generation

Brims Tidal Array Limited Scotland M

–

50.0 Renewable Development

Cloosh Valley Wind Farm Designated

Activity Company

Ireland N

25.0

25.0 Power Generation

Cloosh Valley Wind Farm Holdings Designated

Activity Company

Ireland N

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 K

40.0

40.0 Warehousing and

storage facilities

Digital Reach Partners Limited Scotland A

50.0

– Other Communication

Projects

Doggerbank Offshore Wind Farm Project 1

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

50.0 Holding Company

Doggerbank Offshore Wind Farm Project 3

Projco Limited

England and Wales B

40.0

50.0 Renewable Development

Dunmaglass Wind Farm Limited Scotland A

50.1

50.1 Power Generation

Everwind Limited Ireland Y

49.0

49.0 Power Generation

Gatroben Offshore Developments 1 Limited England and Wales B

40.0

– Renewable Development

Gatroben Offshore Developments 2 Limited England and Wales B

40.0

– Renewable Development

Gatroben Offshore Developments 3 Limited England and Wales B

40.0

– Renewable Development

Greater Gabbard Offshore Winds Limited England and Wales B

50.0

50.0 Power Generation

Green Energy Company Limited Ireland O

47.5

47.5 Dormant

Green Way Energy Limited Ireland O

50.0

50.0 Holding Company

307SSE plc Annual Report 2022

Company Country of incorporation

Registered

address (key)

2022

Holding

2021

Holding

% Principal activity

Kerry Power Limited Ireland O

49.0

49.0 Power Generation

Marchwood Power Limited England and Wales P

50.0

50.0 Power Generation

Marron Activ8 Energies Limited Ireland X

45.0

45.0 Energy Related Services

Midas Energy Limited Ireland O

49.0

49.0 Power Generation

Neos Networks Limited Scotland A

50.0

50.0 Telecommunications

NNXYZ Limited England and Wales B

50.0

50.0 Telecommunications

North Falls Offshore Wind Farm Holdco Limited England and Wales B

50.0

50.0 Holding company

North Falls Offshore Wind Farm Limited England and Wales B

50.0

50.0 Renewable Development

PriDE (Serp) Ltd England and Wales Q

–

50.0 Estate Maintenance

and Improvement

Scohoco 1 Limited Scotland A

40.0

– Holding company

Scoprojco 1 Limited Scotland A

40.0

– Renewable Development

Scotia Gas Networks Limited England and Wales R

–

33.3 Gas Distribution

Scotland Gas Networks plc Scotland AC

–

33.3 Gas Distribution

Seabank Power Limited England and Wales S

50.0

50.0 Power Generation

Seagreen 1A (Holdco) Limited England and Wales B

49.0

49.0 Holding company

Seagreen 1A Limited England and Wales B

49.0

49.0 Renewable Development

Seagreen Alpha Wind Energy Limited England and Wales B

49.0

49.0 Renewable Development

Seagreen Bravo Wind Energy Limited England and Wales B

49.0

49.0 Renewable Development

Seagreen Holdco 1 Limited England and Wales B

49.0

49.0 Holding company

Seagreen Wind Energy Limited England and Wales B

49.0

49.0 Renewable Development

SGN Belvedere Limited England and Wales R

–

33.3 Property

SGN Brighton Limited England and Wales R

–

33.3 Property

SGN Commercial Services Limited England and Wales R

–

33.3 Energy Related Services

SGN Connections Limited England and Wales R

–

33.3 Gas Distribution

SGN Contracting Limited England and Wales R

–

33.3 Energy Related Services

SGN Epsom Limited England and Wales R

–

33.3 Property

SGN Greenwich Limited England and Wales R

–

33.3 Property

SGN Kennington Limited England and Wales R

–

33.3 Property

SGN Lessona Limited England and Wales R

–

33.3 Holding company

SGN MidCo Limited England and Wales R

–

33.3 Holding company

SGN Motspur Park Limited England and Wales R

–

33.3 Property

SGN Natural Gas Limited England and Wales R

–

33.3 Gas Distribution

SGN Old Kent Road Limited England and Wales R

–

33.3 Property

SGN Place Limited England and Wales R

–

33.3 Holding company

SGN PledgeCo Limited England and Wales R

–

33.3 Holding company

SGN Property Holdings Limited England and Wales R

–

33.3 Property

SGN Property Services Limited England and Wales R

–

33.3 Property

SGN Rotherhithe Limited England and Wales R

–

33.3 Property

SGN Smart Limited England and Wales R

–

33.3 Gas Distribution

SGN Southampton Limited England and Wales R

–

33.3 Property

Southern Gas Networks plc England and Wales R

–

33.3 Gas Distribution

SSE Slough Multifuel Holdco Limited England and Wales B

50.0

100.0 Holding company

SSE Slough Multifuel Limited England and Wales B

50.0

50.0 Power Generation

Stronelairg Wind Farm Limited Scotland A

50.1

50.1 Power Generation

** 50.1% of voting rights held.

A3.1.4 Associates

Company Country of incorporation

Registered

address

(key (i))

2022

Holding

2021

Holding

% Principal activity

Murphy Asset Services Limited England and Wales AD – 16.6 Holding Company

Shetland Land Lease Limited England and Wales T – 20.0 Development Company

St Clements Services Limited England and Wales U 25.0 25.0 Utilities Software

308 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A3. Related undertakings continued

A3.1.5 Registered address key

Reference Company registered address

A Inveralmond House, 200 Dunkeld Road, Perth PH1 3AQ

B No 1 Forbury Place, 43 Forbury Road, Reading RG1 3JH

C Red Oak South, South County Business Park, Leopardstown, Dublin 18

D Ocean Court, Caspian Road, Atlantic Street, Altrincham, WA14 5HH

E Keadby Power Station, Trentside, Keadby, Scunthorpe, North Lincs DN17 3AZ

F 3rd Floor, Millennium House, 17-25 Great Victoria Street, Belfast, BT2 7AQ

G Tower House, Loch Promenade, Douglas, Isle of Man

H Büro München, Elektrastrasse 6, 81925, München, Germany

I The Gutters’ Hut, North Ness Business Park, Lerwick, Shetland ZE1 0LZ

J Dunedin House Auckland Park, Mount Farm, Milton Keynes, Buckinghamshire, MK1 1BU

K City Point, 65 Haymarket Terrace, Edinburgh, EH12 5HD

L 16 Axis Way, Mallard Way, Swansea Vale, Swansea, SA7 OAJ

M The Vision Building, 20 Greenmarket, Dundee, DD1 4QB

N 6th Floor, South Bank House, Barrow Street, Dublin 4

O Lissarda Industrial Park, Lissarda, Macroom, County Cork

P Oceanic Way, Marchwood Industrial Park, Marchwood, Southampton SO40 4BD

Q Capital Tower, 91 Waterloo Road, London, SE1 8RT

R St Lawrence House, Station Approach, Horley, Surrey RH6 9HJ

S Severn Road, Hallen, Bristol, BS10 7SP

T 18th Floor, 10 Upper Bank Street, Canary Wharf, London, E14 5BF

U 4-6 Church Walk, Daventry, NN11 4BL

V 5 Horwick Place, London, England, SWIP 1WG

W Unit 14 Maryland Industrial Estate, Ballygowan Road, Belfast

X Dunoge, Carrickmacross, Co. Monaghan, Ireland

Y Gorthleahy, Macroom, Co Cork, Ireland

Z c/o Fiduservice SA, Route de Beaumont 20, 1701 Freiburg, Switzerland

AA c/o CMS Hasche Sigle, Stadthausbrücke 1-3, 20355 Hamburg

AB Windmill Hill Business Park, Whitehill Way, Swindon, Wiltshire SN5 6PB

AC Axis House 5 Lonehead Drive, Newbridge, Edinburgh, Scotland, EH28 8TG

AD Hiview House, Highgate Road, London, United Kingdom, NW5 1TN

AE CMS Edinburgh, Saltire Court, 20 Castle Terrace, Edinburgh EH1 2EN

AF Rm 1901, 19/F, Lee Garden One, 33 Hysan Avenue, Causeway Bay, Hong Kong

AG Hiview House, Highgate Road, London, NW5 1TN

AH Corporation Service Company, 251 Little Falls Drive, Wilmington, Delaware, 19808

AI Towarowa no.28, suite 00-839, Warsaw, Poland

AJ Roppongi Grand Tower, 3-2-1 Roppongi, Minato-ku, Tokyo, Japan

AK Stewart Building Esplanade, Lerwick, Shetland, Scotland, ZE1 0LL

AL Hofplein 20, Rotterdam, 3032 AC, Netherlands

A4. Joint ventures and associates

The Directors have assessed that the investments in the following equity accounted joint ventures and associates are of a sufficiently

material impact to warrant additional disclosure on an individual basis. Details of on the financial position and financial results of the Group:

Company Principal activity

Country of

incorporation

Class of

shares held

Proportion

of shares

held %

Group

interest

% Year end date

Consolidation

basis

Scotia Gas Networks Limited Gas Distribution UK Ordinary – 33.3 31 March Equity

Seabank Power Limited Power Generation UK Ordinary 50.0 50.0 31 December Equity

Marchwood Power Limited Power Generation UK Ordinary 50.0 50.0 31 December Equity

Clyde Windfarm (Scotland) Limited Power Generation UK Ordinary 50.1 50.1 31 March Equity

Beatrice Offshore Windfarm Limited Power Generation UK Ordinary 40.0 40.0 31 March Equity

Dunmaglass Wind Farm Limited Power Generation UK Ordinary 50.1 50.1 31 March Equity

Stronelairg Wind Farm Limited Power Generation UK Ordinary 50.1 50.1 31 March Equity

Neos Networks Limited Telecoms UK Ordinary 50.0 50.0 31 March Equity

309SSE plc Annual Report 2022

Summary information for material joint ventures and associates from unaudited financial statements is as follows:

Seabank

Power

Limited

2022

£m

Marchwood

Power

Limited

2022

£m

SSE

Slough

Multifuel

Limited

2022

£m

Clyde

Windfarm

(Scotland)

Limited

2022

£m

Seagreen

Offshore

Windfarm

Limited

2022

£m

Beatrice

Offshore

Windfarm

Limited

2022

£m

Dunmaglass

Wind Farm

Limited

2022

£m

Stronelairg

Wind Farm

Limited

2022

£m

Neos

Networks

Limited

2022

£m

Other

2022

£m

Total

continuing

operations

2022

£m

SGN

discontinued

operation

2022

£m

Revenue 260.9 97.6 – 270.9 – 111.6 59.6 142.0 156.8 42.7 1,142.1 181.3

Other income

– – – – – 281.3 – – – – 281.3 –

Depreciation

and

amortisation

(5.7) (32.2) – (29.8) – (90.6) (8.0) (14.1) (84.0) (30.5) (294.9) (3 3.3)

Other

operating

costs

(235.6) (21.2) – (48.9) – (84.3) (10.8) (25.3) (102.6) (16.5) (545.2) (85.0)

Operating

profit

19.6 44.2 – 192.2 – 218.0 40.8 102.6 (29.8) (4.3) 583.3 63.0

Interest expense

(0.1) (6.6) – (18.3) – (69.0) (6.2) (12.5) (24.0) (13.5) (150.2) (46.9)

Profit before tax 19.5 37.6 – 173.9 – 149.0 34.6 90.1 (53.8) (17.8) 433.1 16.1

Corporation tax

(9.8) (7.6) – (54.2) – (55.8) (13.8) (25.4) (4.0) – (170.6) (259.3)

Profit after tax

9.7 30.0 – 119.7 – 93.2 20.8 64.7 (57.8) (17.8) 262.5 (243.2)

Recognised

in other

comprehensive

income

Actuarial gain

on retirement

benefit

schemes

– – – – – – – – – – – 6.3

Taxation – – – – – – – – – – – (7.1)

Cash flow

hedges

– – 7.2 – – 131.9 – – – 267.1 406.2 (1.9)

Taxation

– – (1.4) – – (25.1) – – – (50.4) (76.9) 4.8

– – 5.8 – – 106.8 – – – 216.7 329.3 2.1

Total

comprehensive

income/(loss)

9.7 30.0 5.8 119.7 – 200.0 20.8 64.7 (57.8) 198.9 591.8 (241.1)

SSE share of

profit

(based on %

equity)

4.8 15.0 – 60.0 – 37.3 10.4 32.5 (29.0) (20.3) 110.7 (81.0)

Dividends

paid to

shareholders

– 29.2 – 105.9 – 183.2 21.7 47.5 4.4 – 391.9 –

Non-current

assets

105.8 194.2 177.3 599.5 2,253.8 2,018.7 186.3 350.1 445.5 3,716.5 10,047.7 –

Current assets 58.0 39.7 4.6 110.8 6.1 44.0 23.7 52.6 79.4 41.4 460.3 –

Cash and cash

equivalents

29.0 21.5 4.9 69.9 73.7 130.7 13.8 47.5 20.0 93.7 504.7 –

Current liabilities (4.4) (38.2) (7. 2) (16.9) (151.1) (167. 3) (4.2) (18.1) (145.0) (200.9) (753.3) –

Non-current

liabilities

(64.8) (100.4) (146.9) (429.2) (2,129.3) (1,892.8) (135.5) (253.5) (278.4) (3,402.9) (8,833.7) –

Net assets

123.6 116.8 32.7 334.1 53.2 133.3 84.1 178.6 121.5 247.8 1,425.7 –

Group equity

interest

50% 50% 50% 50.1% 49% 40% 50.1% 50.1% 50% – – –

Net assets 123.6 116.8 32.7 334.1 53.2 133.3 84.1 178.6 121.5 247.8 1,425.7 –

Group’s share

of ownership

interest

61.8 58.4 16.4 167.4 26.1 53.4 42.1 89.5 60.7 99.4 675.2 –

Other

adjustments

(11.7) 0.8 56.5 25.2 220.2 (53.4) 69.2 224.4 (5.4) 38.5 564.3 –

Carrying value

of group’s

equity interest

50.1 59.2 72.9 192.6 246.3 – 111.3 313.9 55.3 137.9 1,239.5 –

310 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A4. Joint ventures and associates continued

Seabank

Power

Limited

2021

£m

Marchwood

Power

Limited

2021

£m

Multifuel

Energy

Limited

2021

£m

Clyde

Windfarm

(Scotland)

Limited

2021

£m

Walney

(UK)

Offshore

Windfarms

Limited

2021

£m

Beatrice

Offshore

Windfarm

Limited

2021

£m

Dunmaglass

Wind Farm

Limited

2021

£m

Stronelairg

Wind Farm

Limited

2021

£m

Neos

Networks

Limited

2021

£m

Other

2021

£m

Total

continuing

operations

2021

£m

SGN

discontinued

operation

2021

£m

Revenue 144.6 88.0 53.7 135.7 57.8 87.5 26.7 51.0 133.2 65.5 843.7 1,235.4

Other income – – – – – 256.2 – – – – 256.2 –

Depreciation

and

amortisation (11.6) (2.2) (17.9) (29.4) (22.9) (89.0) (7.8) (13.9) (70.6) (38.7) (304.0) (184.7)

Other

operating

costs

(115.9) (47.6) (9.0) (37.5) (27.5) (74.6) (6.4) (18.6) (71.8) (16.6) (425.5)

(531.7)

Operating

profit

17.1 38.2 26.8 68.8 7.4 180.1 12.5 18.5 (9.2) 10.2 370.4

519.0

Interest expense (0.2) (7.7) (18.9) (17.9) (1.1) (75.2) (6.1) (12.3) (22.6) (24.1) 186.1 (189.3)

Profit before tax 16.9 30.5 7.9 50.9 6.3 104.9 6.4 6.2 (31.8) (13.9) 184.3 329.7

Corporation tax (3.9) (6.8) (1.6) (11.5) (1.2) (23.2) (1.6) (1.8) – (1.3) (52.9) (63.9)

Profit after tax 13.0 23.7 6.3 39.4 5.1 81.7 4.8 4.4 (31.8) (15.2) 131.4 265.8

Recognised

in other

comprehensive

income

Actuarial gain

on retirement

benefit

schemes – – – – – – – – – – – (68.1)

Taxation – – – – – – – – – – – 13.3

Cash flow

hedges – – – – – 75.1 – – – (13.7) 61.4 17.4

Taxation – – – – – (14.3) – – – 1.7 (12.6) (3.3)

– – – – – 60.8 – – – (12.0) 48.8 (40.7)

Total

comprehensive

income/(loss) 13.0 23.7 6.3 39.4 5.1 142.5 4.8 4.4 (31.8) (27.2) 180.2 225.1

SSE share of

profit (based

on % equity) 6.5 11.9 3.2 19.7 1.3 32.7 2.4 2.2 (15.9) (18.5) 45.5 88.6

Dividends paid to

shareholders 17.0 16.6 – 66.1 – 56.4 15.8 28.9 4.4 – 205.2 38.3

Non-current

assets 107.5 228.5 – 612.0 – 1,994.1 191.4 353.9 535.1 2,885.8 6,908.3 7,901.3

Current assets 39.7 36.6 – 53.6 – 478.7 9.8 20.7 67.9 111.6 818.6 215.5

Cash and cash

equivalents 25.7 3.9 – 35.5 – 95.2 5.1 22.7 18.5 123.8 330.4 283.6

Current liabilities (5.7) (26.5) – (7.7) – (495.3) (1.7) (14.9) (145.8) (246.5) (944.1) (441.8)

Non-current

liabilities (37.3) (128.7) – (410.8) – (2,111.0) (132.0) (244.9) (216.0) (2,869.6) (6,150.3) (6,114.9)

Net assets 129.9 113.8 – 282.6 – (38.3) 72.6 137.5 259.7 5.1 962.9 1,843.7

Group equity

interest 50% 50% – 50.1% – 40% 50.1% 50.1% 50% – – 33.3%

Net assets 129.9

113.8 – 282.6 – (38.3) 72.6 137.5 259.7 5.1 962.9 1,843.7

Group’s share of

ownership

interest 65.0 56.9 – 141.6 – (15.3) 36.3 68.9 129.9 – 483.3 614.5

Other

adjustments (19.7) 1.9 – 49.0 – (6.3) 80.1 250.4 61.3 118.0 534.7 11.0

Carrying value of

group’s equity

interest 45.3 58.8 – 190.6 – (21.6) 116.4 319.3 191.2 118.0 1,018.0 625.5

311SSE plc Annual Report 2022

In addition to the above at 31 March 2022, the Group was owed the following loans from its principal joint ventures: Marchwood Power

Limited £39.1m (2021: £47.1m); Clyde Windfarm (Scotland) Ltd £127.1m (2021: £127.1m); Dunmaglass Wind Farm Limited £46.5m (2021:

£46.5m); Stronelairg Wind Farm Limited £88.2m (2021: £88.2m) Neos Networks Limited £90.2m (2021: £60.9m); Seagreen Offshore

Windfarm Ltd £271.7m (2021: £4.1m) and Slough Multifuel Limited £62.5m (2021: £nil).

This represents 99% (2021: 86.2%) of the loans provided to equity-accounted joint ventures and associates.

Doggerbank A, B & C joint ventures are predominately project financed in the earlier phases of construction. The carrying value of the

equity and debt investment in these joint ventures is £97.5m at 31 March 2022.

A5. Related party transactions

The immediate parent and ultimate controlling party of the Group is SSE plc (incorporated in Scotland). Balances and transactions between

the Company and its subsidiaries, which are related parties of the Company, have been eliminated on consolidation and are not disclosed in

this note. Details of transactions between the Group and other related parties are disclosed below.

Trading transactions

The following transactions took place during the year between the Group and entities which are related to the Group, but which are not

members of the Group. Related parties are defined as those in which the Group has control, joint control or significant influence over.

2022

Sale of

goods and

services

£m

2022

Purchase of

goods and

services

£m

2022

Amounts

owed from

£m

2022

Amounts

owed to

£m

2021

Sale of

goods and

services

£m

2021

Purchase of

goods and

services

£m

2021

Amounts

owed from

£m

2021

Amounts

owed to

£m

Joint ventures:

Seabank Power Ltd 51.9 (49.1) – – 75.2 (86.7) 0.1 (16.8)

Marchwood Power Ltd 104.3 (229.3) – (7.6) 45.3 (142.3) 0.6 (11.2)

Scotia Gas Networks Ltd 42.9 (10.1) – – 29.9 (13.1) 17.3 (1.1)

Clyde Windfarm (Scotland) Ltd 4.6 (259.3) 0.1 (74.2) 4.3 (116.1) 0.1 (38.2)

Beatrice Offshore Windfarm Ltd 5.0 (163.7) 0.9 (20.6) 5.3 (43.7) 1.1 (5.3)

Stronelairg Windfarm Ltd 2.1 (138.5) – (36.7) 1.9 (44.7) – (17.1)

Dunmaglass Windfarm Ltd 1.0 (57.9) – (13.7) 0.9 (22.2) – (6.6)

Neos Networks Ltd 31.2 (27.1) 52.2 (13.8) 38.0 (26.3) 41.4 (1.4)

Other Joint Ventures 54.3 (196.3) 15.8 (23.8) 22.5 (193.8) 54.8 (1.9)

Associates – – – – – (16.2) – –

The transactions with Seabank Power Limited and Marchwood Power Limited relate to the contracts for the provision of energy or the

tolling of energy under power purchase arrangements. Scotia Gas Networks Limited (‘SGN’) operates the gas distribution networks in

Scotland and the South of England. The Group’s gas supply activity incurs gas distribution charges while the Group also provides services

to SGN in the form of a management services agreement for corporate and shared services. On 2 August 2021, the Group announced

it had agreed to sell its 33.3% stake in SGN. The Group assessed that the investment met the criteria to be classified as held for sale on

11 June 2021 when an Exclusivity Agreement was signed by the acquiring consortium. Accordingly, from 11 June 2021 the Group ceased

to equity account for SGN. On 22 March 2022 the Group completed its disposal its interest in SGN.

The amounts outstanding are trading balances, are unsecured and will be settled in cash. No guarantees have been given or received.

No provisions have been made for doubtful debts in respect of the amounts owed by related parties. Aggregate capital loans to joint

ventures and associates are shown in note 16.

A6. Financial risk management

This note presents information about the fair value of the Group’s financial instruments, the Group’s exposure to the risks associated with

those instruments, the Group’s objectives, policies and processes for measuring and managing risk, and the Group’s management of

capital. Further qualitative disclosures are included throughout these consolidated financial statements.

The Group has exposure to the following risks from its use of financial instruments:

• Credit risk

• Liquidity risk

• Commodity risk

• Currency risk

• Interest rate risk

The Board has overall responsibility for the establishment and oversight of the Group’s risk management framework. The Group’s

policies for risk management are established to identify the risks faced by the Group, to set appropriate risk limits and controls, and to

monitor risks and adherence to limits. Exposure to commodity, currency and interest rate risks arise in the normal course of the Group’s

business and derivative financial instruments are entered into to hedge exposure to these risks.

312 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A6. Financial risk management continued

SSE has a Group wide risk committee reporting to the Group Executive Committee, which is responsible for reviewing the strategic,

market, credit, operational and liquidity risks and exposures that arise from the Group’s operating activities. In addition, the Group has two

dedicated Energy Market risk committees reporting to the Group Executive Committee and Board respectively, with the Group Executive

Sub-committee chaired by the Group Finance Director and the Board Sub-committee chaired by Non-Executive Director Tony Cocker.

These Committees oversee the Group’s management of its energy market exposures, including its approach to hedging.

During the year ended 31 March 2022, the Group was exposed to exceptional volatility in energy markets impacting the primary

commodities to which it is exposed (Gas, Carbon and Power). The Group’s approach to hedging, and the diversity of its energy portfolios

(across Wind, Hydro, Thermal and Customers) has provided significant mitigation of these exposures. Exceptional rises and volatility in

commodity prices have created a particular challenge in managing counter-party credit and collateral exposures and requirements, to

ensure continued access to energy markets to enable hedging and prompt optimisation of SSE’s energy portfolios. This market access

has been successfully maintained.

Exposure to the commodity, currency and interest rate risks noted arise in the normal course of the Group’s business and derivative financial

instruments are entered into to hedge exposure to these risks. The objectives and policies for holding or issuing financial instruments and

similar contracts, and the strategies for achieving those objectives that have been followed during the year are explained below.

A6.1 Credit risk

Credit risk is the risk of financial loss to the Group if a customer or counterparty fails to meet its contractual obligations.

Credit risk arising from the Group’s normal commercial operations is controlled by individual business units operating in accordance with

Group policies and procedures. Generally, for significant contracts, individual business units enter into contracts or agreements with

counterparties having investment grade credit ratings only, or where suitable collateral or other security has been provided. Counterparty

credit validation is undertaken prior to contractual commitment.

Credit risk management for the Group’s SSEN Transmission and SSEN Distribution businesses is performed in accordance with industry

standards as set out by the Regulator and is financially controlled by the individual business units. The Group’s greatest credit risks lie

with the operations of the Customers business, the wholesale procurement activities conducted by Energy Portfolio Management

(‘EPM’) under a trust arrangement and the activities carried out by the Group’s Treasury function. In all cases, specific credit risk controls

that match the risk profile of those activities are applied. Exposure to credit risk in the retail supply of electricity and gas to end user

customers arises from the potential of a customer defaulting on their invoiced payables. The Group exposure to retail supply customers

is limited to customers of the Group’s Airtricity business. The creditworthiness of these customers is reviewed from a variety of internal

and external information. The financial strength and creditworthiness of business customers is assessed prior to commencing, and for

the duration of, their contract of supply.

Exposure to credit risk in the procurement of wholesale energy and fuel is managed by reference to agreed transaction credit limits

which are determined by whether the counterparty:

• holds an investment grade credit rating; or

• can be assessed as adequately creditworthy in accordance with internal credit rules using information from other external credit

agencies; or

• can provide a guarantee from an investment grade rated entity or post suitable collateral or provide other acceptable assurances

in accordance with group procedures where they have failed to meet the above conditions; or

• can be allocated a non-standard credit limit approved by the relevant Risk or Treasury Committee within its authorised limits as

delegated by the Group Board.

Credit support clauses and Master Netting Agreements are typically included or entered into in order to mitigate the impact to the Group

against counterparty failure or non-delivery. As part of its normal activities, EPM transacts significant volumes of commodity derivative

products through cleared exchanges to mitigate credit risk. Such exchanges are subject to strict regulation by the UK Financial Conduct

Authority (FCA) and participants in these exchanges are obliged to meet rigorous capital adequacy requirements.

Individual counterparty credit exposures are monitored regularly and are subject to approved limits. At 31 March 2022, EPM had pledged

£545.9m (2021: £201.8m) of cash collateral and letters of credit and had received £95.8m (2021: £80.1m) of cash collateral and letters of

credit principally to reduce exposures on credit risk.

Bank credit exposures, which are monitored and reported on daily, are calculated on a mark-to-market basis and adjusted for future

volatility and probability of default. Any issues relating to these credit exposures are presented for discussion and review by the Tax and

Treasury Committee.

Cash and cash equivalents comprise cash in hand and deposits which are readily convertible to cash. These are subject to insignificant

risk of change in value or credit risk.

Derivative financial instruments are entered into to cover the Group’s market risks – commodity risk, interest rate risk, currency risk – and

are consequently covered elsewhere in this note.

Trade receivables represent the most significant exposure to credit risk and are stated after an allowance for impairment.

313SSE plc Annual Report 2022

A6.2 Concentrations of risk

Trade receivables recorded by reported segment held at the 31 March were:

2022

£m

2021

£m

Continuing operations

SSEN Transmission 7.9 7.8

SSEN Distribution 122.3 96.2

SSE Renewables 84.1 77.3

SSE Thermal 21.2 7.0

Gas Storage 1.4 1.4

Energy Customer Solutions

Business Energy 231.3 199.3

SSE Airticity 231.6 228.8

Distributed Energy 38.4 5.3

EPM 679.3 192.4

Corporate Unallocated 16.4 16.7

Total continuing operations 1,433.9 832.2

Held for sale assets and discontinued operations

Gas Production – 7.7

Contracting and Rail – 70.2

Total discontinued operations – 77.9

Total SSE Group 1,433.9 910.1

The Energy Customers Solution segment (Business Energy and SSE Airtricity) accounts for 32.3% (2021: 51.4%) of the Group’s trade

receivables from continuing operations. Trade receivables associated with the Group’s 1.2 million electricity and gas customers (from

continuing operations) are recorded in this segment. The Group also has significant receivables associated with its EPM activities which

are generally settled within two to four weeks from invoicing. The Group’s exposure to credit risk is therefore subject to diversification

with no exposure to individual retail customers totalling >10% of trade receivables. The largest customer balance, due from an EPM

customer (also an EPM supplier), is 7% (2021: 4%) of the total trade receivables.

The ageing of trade receivables at the reporting date was:

2022

£m

2021

£m

Not past due 1,167.7 812.0

Past due but not individually impaired:

0 – 30 days 185.3 58.2

31 – 90 days 60.8 27.9

Over 90 days 98.3 89.8

1,512.1 987.9

Less: allowance for impairment (78.2) (77.8)

Net trade receivables 1,433.9 910.1

The Group has past due debt which has not had an impairment allowance set aside to cover potential credit losses. The Group

hascertain procedures to pursue customers in significant arrears and believes its impairment policy in relation to such balances

isappropriate.

The Group has other receivables which are financial assets totalling £4.9m (2021: £3.8m).

314 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A6. Financial risk management continued

A6.2 Concentrations of risk continued

The movement in the allowance for impairment of trade receivables (continuing operations only) was:

2022

£m

2021

£m

Balance at 1 April 77.1 7 7.7

(Decrease)/increase in allowance for impairment (16.8) 17.6

Impairment losses recognised 17.9 (17.5)

Transfer to held for sale – (0.7)

Balance at 31 March 78.2 7 7.1

At the end of each reporting period a review of the allowance for impairment of trade receivables is performed. Trade receivables do not

contain a significant financing element, and therefore expected credit losses are measured using the simplified approach permitted by

IFRS 9, which requires lifetime expected credit losses to be recognised on initial recognition. A provision matrix is utilised to estimate the

lifetime expected credit losses, based on the age, status and risk of each class of receivable, which is updated periodically to include

changes to both forward-looking and historical inputs.

A6.3 Liquidity risk and Going Concern

Liquidity risk, the risk that the Group will have insufficient funds to meet its liabilities, is managed by the Group’s Treasury function. The

Group can be exposed to significant movements in its liquidity position due to changes in commodity prices, working capital requirements,

the impact of the seasonal nature of the business and phasing of its capital investment and recycling programmes.

Treasury is responsible for managing the banking and liquidity requirements of the Group, risk management relating to interest rate and

foreign exchange exposures, and for managing the credit risk relating to the banking counterparties with which it transacts. Short term

liquidity is reviewed daily by Treasury, while the longer term liquidity position is reviewed on a regular basis by the Board. The department’s

operations are governed by policies determined by the Board and any breaches of these policies are reported to the Tax and Treasury

Committee and Audit Committee.

In relation to the Group’s liquidity risk, the Group’s policy is to ensure, as far as possible, that it will always have sufficient liquidity to meet

its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the

Group’s reputation.

During the year, the Group’s internal approach to managing liquidity was to seek to ensure that the Group had available committed

borrowings and facilities equal to at least 105% of forecast borrowings over a rolling 6 month period.

The Group uses cash flow forecasts to monitor its ongoing borrowing requirements. Typically, the Group will fund any short term

borrowing positions by issuing commercial paper or borrowing from committed and uncommitted bank lines and will invest in money

market funds when it has a cash surplus. Details of the Group’s borrowings are disclosed at note 21. In addition to the borrowing facilities

listed at note 21.3, the Group has £100m of uncommitted bank lines and a £15m overdraft facility.

The refinancing requirement in the 22/23 financial year is £2.1bn, being the $255m (£163m) US Private Placement maturing 19 April 2022;

£507m of short term Commercial Paper that matures over April and May; £300m Eurobond maturing 22 September 2022; £150m of EIB

loans maturing in October 2022. On 22 April 2022, subsequent to the balance sheet date, the Group announced it would redeem its

$900m and £300m debt accounted hybrid securities on 16 June 2022. The redemption of these instruments has been included in the

assumed refinancing requirement within the going concern assessment. The directors are confident in the ability of the Group to maintain

a funding level above 105% for the going concern assessment period based on the strong credit standing and borrowing history of the

Group for both fixed debt and commercial paper, as discussed more fully below.

Given the committed bank facilities of £1.5bn maintained by the Group and the current commercial paper market conditions, the Directors

have concluded that both the Group and SSE plc as parent company have sufficient headroom to continue as a going concern. In coming

to this conclusion, the Directors have taken into account the Group’s credit rating and the successful issuance of £12.8bn of medium to

long term debt and Hybrid equity since February 2012, including £1.2bn in March and April 2022 (being £350m dual tranche 10 and 15 year

private placement and €1bn (£830m) NC6 equity accounted Hybrid). The Group’s period of Going Concern assessment is performed to

31 December 2023, 21 months from the balance sheet date, which is at least 12 months from the filing deadline of its subsidiary companies.

As well as taking account of the factors noted, the Going Concern conclusion is arrived at after applying stress testing sensitivities to the

Group’s cash flow and funding projections including removal of proceeds from unconfirmed future divestments, negative and positive

sensitivities on operating cash flows and uncommitted capex and other adjustments. The Group has also considered its obligations under its

debt covenants. There have been no breaches of covenant in the year and the Group’s projections support the expectation that there will be

no breach of covenants over the period to 31 December 2023. The statement of going concern is included in the Audit Committee Report.

315SSE plc Annual Report 2022

Treasury also manage the Group’s interaction with its relationship banks (defined as those banks that support the Group’s financing activities

through their ongoing participation in the committed lending facilities that are maintained by the Group). These are each allocated financial

limits, subject to the maintenance of a minimum credit rating of investment grade or better allocated by a recognised major ratings group.

In respect of short-term cash management, counterparties are subject to review and approval according to defined criteria.

As at 31 March 2022, the value of outstanding cash collateral posted in respect of mark-to-market related margin calls on exchange

traded positions was (£74.7m) (2021: £37.1m).

The contractual cash flows shown in the following tables are the contractual undiscounted cashflows under the relevant financial

instruments. Where the contractual cashflows are variable based on a price, foreign exchange rate or index in the future, the contractual

cashflows in the following tables have been determined with reference to the relevant price, foreign exchange rate, interest rate or index

as at the balance sheet date. In determining the interest element of contractual cashflows in cases where the Group has a choice as to

the length of interest calculation periods and the interest rate that applies varies with the period selected, the contractual cashflows have

been calculated assuming the Group selects the shortest available interest calculation periods. Where the holder of an instrument has a

choice of when to redeem, the amounts in the following tables are on the assumption the holder redeems at the earliest opportunity.

The following are the undiscounted contractual maturities of financial liabilities, including interest and excluding the impact of

nettingagreements:

Liquidity Risk

2022

Carrying

value

£m

2022

Contractual

cash flows

£m

2022

0-12 months

£m

2022

1-2 years

£m

2022

2-5 years

£m

2022

> 5 years

£m

Financial Liabilities

Loans and Borrowings

Commercial paper and cash advances 506.1 (507.1) (507.1) – – –

Loans – floating 200.0 (209.7) (1.6) (1.6) (4.9) (201.6)

Loans – fixed 1,508.1 (1,913.7) (358.9) (240.5) (905.4) (408.9)

Unsecured bonds – fixed 6,425.4 (8,392.3) (1,529.7) (681.1) (1,985.5) (4,196.0)

Fair value adjustment 31.6 – – – – –

8,671.2 (11,022.8) (2 ,397.3) (923.2) (2,895.8) (4,806.5)

Lease liabilities 393.5 (581.2) (88.7) (61.7) (162.0) (268.8)

9,064.7 (11,604.0) (2,486.0) (984.9) (3,057.8) (5,075.3)

Derivative Financial Liabilities

Operating derivatives designated at fair value 828.7 (3,079.0) (2,790.0) (178.0) (111.0) –

Interest rate swaps used for hedging 129.2 (129.0) (55.3) (19.0) 43.3 (98.0)

Interest rate swaps designated at fair value 246.2 (246.2) (16.1) (15.6) (46.0) (168.5)

Forward exchange contracts held for hedging 43.4 (521.8) (347.9) (137.2) (36.7) –

Forward exchange contracts designated at fair value 3.6 (208.2) (194.4) (13.8) – –

1,251.1 (4,184.2) (3,403.7) (363.6) (150.4) (266.5)

Other financial liabilities

Trade payables 919.7 (919.7) (919.7) – – –

919.7 (919.7) (919.7) – – –

Total 11,235.5 (16,707.9) (6,809.4) (1,348.5) (3,208.2) (5,341.8)

Derivative Financial Assets

Financing derivatives (182.9) 441.3 382.4 41.6 15.6 1.7

Operating derivatives designated at fair value (3,130.5) 3,057.3 2,597.6 311.1 148.6 –

(3,313.4) 3,498.6 2,980.0 352.7 164.2 1.7

Net total (i) 7,922. 1 (13,209.3) (3,829.4) (995.8) (3,044.0) (5,340.1)

316 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A6. Financial risk management continued

A6.3 Liquidity risk and Going Concern continued

Liquidity Risk

2021

Carrying

value

£m

2021

Contractual

cash flows

£m

2021

0-12 months

£m

2021

1-2 years

£m

2021

2-5 years

£m

2021

> 5 years

£m

Financial Liabilities

Loans and Borrowings

Loans – floating 350.0 (362.0) (152.2) (1.6) (4.9) (203.3)

Loans – fixed 1,496.8 (1,937.3) (47.9) (359.0) (519.2) (1,011.2)

Unsecured bonds – fixed 7,139.6 (9,344.5) (956.3) (1,534.4) (1,935.6) (4,918.2)

Fair value adjustment 3.2 – – – – –

8,989.6 (11,643.8) (1,156.4) (1,895.0) (2,459.7) (6,132.7)

Lease liabilities 421.0 (622.0) (92.7) (86.2) (175.9) (267.2)

9,410.6 (12,265.8) (1,249.1) (1,981.2) (2,635.6) (6,399.9)

Derivative Financial Liabilities

Operating derivatives designated at fair value 138.1 (1,590.1) (1,475.5) (81.3) (33.3) –

Interest rate swaps used for hedging 164.6 (165.3) (63.3) (38.1) (42.9) (21.0)

Interest rate swaps designated at fair value 325.1 (328.1) (20.0) (20.0) (57.1) (231.0)

Forward exchange contracts held for hedging 52.0 (890.1) (292.7) (430.7) (166.7) –

Forward exchange contracts designated at fair value 11.0 (274.7) (262.8) (11.4) (0.5) –

690.8 (3,248.3) (2,114.3) (581.5) (300.5) (252.0)

Other financial liabilities

Trade payables 433.3 (433.3) (433.3) – – –

433.3 (433.3) (433.3) – – –

Total 10,534.7 (15,947.4) (3,796.7) (2,562.7) (2,936.1) (6,651.9)

Derivative Financial Assets

Financing derivatives (240.9) 697.7 581.0 85.8 30.7 0.2

Operating derivatives designated at fair value (344.7) 2,250.6 1,932.8 213.5 104.3 –

(585.6) 2,948.3 2,513.8 299.3 135.0 0.2

Net total (i) 9,949.1 (12,999.1) (1,282.9) (2,263.4) (2,801.1) (6,651.7)

(i) The Group believes the liquidity risk associated with out-of-the-money operating derivative contracts needs to be considered in conjunction with the profile of

payments or receipts arising from derivative financial assets. It should be noted that cash flows associated with future energy sales and commodity contracts

which are not IFRS 9 financial instruments are not included in this analysis, which is prepared in accordance with IFRS 7 “Financial Instruments: Disclosures”.

A6.4 Commodity risk

The Group’s Energy Portfolio Management (‘EPM’) business implements the hedging policy through trading in the commodity markets

and manages the requirement for the delivery of the Group’s physical commodity needs as part of its normal course of business. The risk

management activity carried out by EPM arises from the Group’s requirement to source gas, electricity or other commodities such as

renewable obligation certificates for Business Energy and SSE Airticity, and to procure fuel and other commodities and provide a route-to-

market for SSE Renewables, SSE Thermal, Gas Storage and the discontinued Gas Production business.

317SSE plc Annual Report 2022

Current hedging approach

The Group has traded in three principal commodities during the year, as well as the spreads between two or more commodity prices:

power (baseload and other products); gas; and carbon (emissions allowances). Each commodity has different liquidity characteristics,

which impacts on the degree of hedging possible. Similarly, each of the Group’s assets carries different exposures to the commodity

market and thus requires a different approach to hedging. As such, the Group’s current hedging approach varies by each class of asset

asfollows:

Asset class Minimum hedge target Principal commodity exposures

GB Wind Target to hedge of less than 100% of anticipated wind energy output for the

coming 12 months. From May 2021, this has been at least 90%.

Power, Gas, Carbon

Hydro 85% of forecast generation 12 months in advance of delivery. Power, Gas, Carbon

GB Thermal 100% of expected output 6 months in advance of delivery, progressively

established over the preceding 24 months.

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, Carbon

However, there are three principal areas where significant variations in earnings cannot be fully mitigated through hedging:

• The impact of the weather on the volume of electricity produced from renewable sources;

• The impact of operational matters such as unplanned outages; and

• The ability of flexible thermal power stations to earn extrinsic income by providing services to the electricity system and by

responding to shorter-term electricity market conditions.

Hedging is carried out by each asset class trading internally with EPM to affect these hedges and EPM trading onwards with external

counterparties. EPM is only able to accept internal trades when there is sufficient liquidity to offset them in the external market or they can

be offset with internal trades from other asset classes. In this way, the commodity risks to which EPM is individually exposed, areminimised.

The volumetric extent to which assets are hedged are reported monthly, and to the EMRC on at least a quarterly basis. Variations to

thehedging approach above will be required as markets and other factors (such as asset disposals) change. The EMRC also receives

reporting on credit risk, other risk measures, and market liquidity in assessing whether any variations to the hedging approach

arerequired.

The Group measures and manages the Commodity Risk associated with the financial and non-financial commodity contracts it is

exposed to. However, only certain commodity contracts within the Group constitute financial instruments under IFRS 9. As a result, it is

only the fair value of IFRS 9 financial instruments which represents the exposure of the Group’s commodity price risk under IFRS 7. This is a

consequence of the Group’s accounting policy which stipulates that commodity contracts which are designated as financial instruments

under IFRS 9 should be accounted for on a fair value basis with changes in fair value reflected in profit or equity. Conversely, commodity

contracts that are not designated as financial instruments under IFRS 9 will be accounted for as ‘own use’ contracts. As fair value changes

in own use contracts are not reflected through profit or equity, these do not represent the IFRS 7 commodity price risk. Furthermore, other

physical contracts can be treated as the hedging instrument in documented cash flow hedging relationships where the hedged item is the

forecast future purchase requirement to meet production or customer demand. The accounting policies associated with financial

instruments are explained in the Accompanying Information section A1 .

Sensitivity analysis

The Group’s exposure to commodity price risk according to IFRS 7 is measured by reference to the Group’s IFRS 9 commodity contracts.

IFRS 7 requires disclosure of a sensitivity analysis for market risks that is intended to illustrate the sensitivity of the Group’s financial

position and performance to changes in market variables impacting upon the fair value or cash flows associated with the Group’s

financial instruments.

Therefore, the sensitivity analysis provided discloses the effect on profit or loss and equity at the balance sheet date assuming that a

reasonably possible change in the relevant commodity price had occurred and been applied to the risk exposures in existence at that

date. The reasonably possible changes in commodity prices used in the sensitivity analysis were determined based on calculated or

implied volatilities where available, or historical data.

318 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A6. Financial risk management continued

A6.4 Commodity risk continued

The sensitivity analysis has been calculated on the basis that the proportion of commodity contracts that are IFRS 9 financial instruments

remains consistent with those at that point. Excluded from this analysis are all commodity contracts that are not financial instruments

under IFRS 9.

2022 2021

Base Price (i)

Reasonably

possible

increase/

decrease in

variable Base Price (i)

Reasonably

possible

increase/

decrease in

variable

Commodity prices

UK gas (p/therm) 313 +/-190 44 +/-20

UK power (£/MWh) 250 +/-119 53 +/-24

UK carbon (£/tonne) 76 +/-73 72 +/-11

EU emissions (€/tonne) 79 +/-76 43 +/-11

UK oil (US$/bbl) 260 +/-145 59 +/-11

IRL power (€/MWh) 310 +/-120 53 +/-24

(i) The base price represents the average forward market price over the duration of the active market curve used to calculate the sensitivity analysis. The volatility

assumptions used to determine the reasonably possible increase/decrease in market prices have been determined based on a calculation by SSE EPM and models

simulations and calibrates the volatility assumption using a look-back on market prices over the previous five year period.

The impacts of reasonably possible changes in commodity prices on profit after taxation based on the rationale described are as follows:

Incremental profit/(loss)

2022

Impact on profit

and equity

(£m)

2021

Impact on profit

and equity

(£m)

Commodity prices combined – increase 2,349.8 428.5

Commodity prices combined – decrease (2,349.8) (428.5)

The sensitivity analysis provided is hypothetical and is based on the exposure to energy-related commodities, and their corresponding

valuation under IFRS 9, that the Group has at each period end. This analysis should be used with caution as the impacts disclosed are not

necessarily indicative of the actual impacts that would be experienced given it does not consider all interrelationships, consequences

and effects of such a change in those prices.

A6.5 Currency risk

The Group publishes its consolidated financial statements in Sterling but also conducts business in foreign currencies. As a result, it is

subject to foreign currency exchange risk arising from exchange rate movements which will be reflected in the Group’s transaction costs

or in the underlying foreign currency assets of its foreign operations.

The Group’s policy is to use forward contracts, swaps and options to manage its exposures to foreign exchange risk. All such exposures are

transactional in nature, and relate primarily to procurement contracts, commodity purchasing and related freight requirements, commodity

hedging, long term plant servicing and maintenance agreements, and the purchase and sale of carbon emission certificates. The policy is

to seek to hedge 100% of its currency requirements arising under all committed contracts excepting commodity hedge transactions, the

requirements for which are significantly less predictable. The policy for these latter transactions is to assess the Group’s requirements on a

rolling basis and to enter into cover contracts as appropriate.

The Group has foreign subsidiary operations with significant Euro-denominated net assets. The Group’s policy is to hedge its net

investment in its foreign operations by ensuring the net assets whose functional currency cash flows are denominated in Euros are

matched by borrowings in Euros. For the acquired net assets whose functional cash flows are in Sterling, the Group will ensure Sterling

denominated borrowings are in place to minimise currency risk.

Significant exposures are reported to, and discussed by, the Tax and Treasury Committee on an ongoing basis and additionally form part

of the bi-annual Treasury report to the Audit Committee.

At the balance sheet date, the total nominal value of outstanding forward foreign exchange contracts that the Group has committed to is:

2022

£m

2021

£m

Forward foreign exchange contracts 4,176.4 4,395.5

319SSE plc Annual Report 2022

The Group’s exposure to foreign currency risk was as follows:

2022 2021

SEK

(million)

€

(million)

CHF

(million)

SEK

(million)

€

(million)

Loans and borrowings – 1,719.0 3,625.0 – – 4,125.0 1,719.0

Purchase and commodity contract commitments 1,694.8 17.8 713.3 58.3 2,383.4 518.1 27.9

Gross exposure 1,694.8 1,736.8 4,338.3 58.3 2,383.4 4,643.1 1,746.9

Forward exchange/

swap contracts 1,694.8 1,736.8 3,163.8 58.3 2,383.4 3,443.0 1,746.9

Net exposure (in currency) – – 1,174.5 – – 1,200.1 –

Net exposure (in £m) – – 990.7 – – 1,021.8 –

This represents the net exposure to foreign currencies, reported in pounds Sterling, and arising from all Group activities. All sensitivity

analysis has been prepared on the basis of the relative proportions of instruments in foreign currencies being consistent as at the balance

sheet date. This includes only monetary assets and liabilities denominated in a currency other than Sterling and excludes the translation

of the net assets of foreign operations but not the corresponding impact of the net investment hedge.

The sensitivity analysis is indicative only and it should be noted that the Group’s exposure to such market rate changes is continually

changing. The calculations are based on linear extrapolations of rate changes which may not reflect the actual result which would

impact upon the Group.

A 10% change in foreign currency exchange rates would have had the following impact on profit after taxation, based on the

assumptions presented above:

Equity Income Statement

At 31 March

2022

£m

At 31 March

2021

£m

At 31 March

2022

£m

At 31 March

2021

£m

US Dollars – – – –

Euro 89.2 90.0 – 1.9

SEK – – – –

CHF – – – –

89.2 90.0 – 1.9

The impact of a decrease in rates would be an identical reduction in the annual charge.

A6.6 Interest rate risk

Interest rate risk derives from the Group’s exposure to changes in the value of an asset or liability or future cash flows through changes in

interest rates.

The Group’s policy is to manage this risk by stipulating that a minimum of 50% of Group borrowings be subject to fixed rates of interest,

either directly through the debt instruments themselves or through the use of derivative financial instruments. The floating rate borrowings

are provided by banks including the European Investment Bank (EIB). Such instruments include interest rate swaps and options, forward rate

agreements and, in the case of debt raised in currencies other than Sterling, cross currency swaps. These practices serve to reduce the

volatility of the Group’s financial performance.

Although interest rate derivatives are primarily used to hedge risk relating to current borrowings, under certain circumstances they may

also be used to hedge future borrowings. Any such pre-hedging is unwound at the time of pricing the underlying debt, either through

cash settlement on a net present value basis or by transacting offsetting trades. The floating rate borrowings mainly comprise cash

advances from the European Investment Bank (EIB), however the Group is currently carrying a surplus cash position of £1.0bn.

The impact of a change in interest rates is dependent on the specific details of the financial asset or liability in question. Changes in fixed

rate financial assets and liabilities, which account for the majority of cash, loans and borrowings, are not measured at fair value through

the income statement. In addition to this, changes to fixed-to-floating hedging instruments which are recorded under cash flow hedge

accounting also do not impact the income statement. Changes in variable rate instruments and hedging instruments and hedged items

recorded under fair value hedge accounting are recorded through the income statement. The exposure measured is therefore based on

variable rate debt and instruments.

320 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A6. Financial risk management continued

A6.6 Interest rate risk continued

The net exposure to interest rates at the balance sheet date can be summarised thus:

2022

Carrying

amount

£m

2021

Carrying

amount

£m

Interest bearing/earning assets and liabilities:

– fixed (8,543.6) (9,804.2)

– floating 328.9 1,721.7

(8,214.7) (8,082.5)

Represented by:

Cash and cash equivalents 1,049.3 1,600.2

Derivative financial liabilities (199.3) (272.1)

Loans and borrowings (8,671.2) (8,989.6)

Lease liabilities (393.5) (421.0)

(8,214.7) (8,082.5)

Following from this, the table below represents the expected impact of a change of 100 basis points in short term interest rates at the

reporting date in relation to equity and income statement. The analysis assumes that all other variables, in particular foreign currency

rates, remain constant. An increase in exchange rates would be a change to either the income statement or equity. The assessment is

based on a revision of the fair value assumptions included in the calculated exposures in the previous table.

All sensitivity analysis has been prepared on the basis of the proportion of fixed to floating instruments being consistent as at the balance

sheet date and is stated after the effect of taxation.

The sensitivity analysis is indicative only and it should be noted that the Group’s exposure to such market rate changes is continually

changing. The calculations are based on linear extrapolations of rate changes which may not reflect the actual result which would

impact upon the Group.

2022

£m

2021

£m

Income statement 2.5 (0.9)

The impact of a decrease in rates would be an equal reduction in the annual charge. There is no impact on equity as the analysis relates

to the Group’s net exposure at the balance sheet date. Contracts qualifying for hedge accounting are, by definition, part of the Group’s

covered position.

321SSE plc Annual Report 2022

A7. Fair value of financial instruments

A7.1 Fair value of financial instruments within the group

The fair values of the primary financial assets and liabilities of the Group together with their carrying values are as follows:

2022

Amortised

cost (i)

£m

2022

FVTPL/

FVTOCI (ii)

£m

2022

Total

carrying

value

£m

2022

Fair value

£m

2021

Amortised

cost (i)

£m

2021

FVTPL/

FVTOCI (ii)

£m

2021

Total

carrying

value

£m

2021

Fair value

£m

Financial assets

Current

Trade receivables 1,433.9 – 1,433.9 1,433.9 832.2 – 832.2 832.2

Other receivables 4.9 – 4.9 4.9 3.8 – 3.8 3.8

Cash collateral and other short term loans 83.8 – 83.8 83.8 2.7 – 2.7 2.7

Cash and cash equivalents 1,049.3 – 1,049.3 1,049.3 1,600.2 – 1,600.2 1,600.2

Derivative financial assets – 2,941.8 2,941.8 2,941.8 – 470.9 470.9 470.9

2,571.9 2,941.8 5,513.7 5,513.7 2,438.9 470.9 2,909.8 2,909.8

Non-current

Unquoted equity investments – 8.7 8.7 8.7 – 3.6 3.6 3.6

Loan note receivable 136.4 – 136.4 136.4 115.9 – 115.9 115.9

Loans to associates and jointly

controlled entities 736.9 – 736.9 736.9 554.3 – 554.3 554.3

Derivative financial assets – 371.7 371.7 371.7 – 114.7 114.7 114.7

873.3 380.4 1,253.7 1,253.7 670.2 118.3 788.5 788.5

3,445.2 3,322.2 6,767.4 6,767.4 3,109.1 589.2 3,698.3 3,698.3

Financial liabilities

Current

Trade payables (919.7) – (919.7) (919.7) (433.3) – (433.3) (433.3)

Outstanding liquid funds (9.1) – (9.1) (9.1) (39.8) – (39.8) (39.8)

Loans and borrowings (1,118.7) – (1,118.7) (1,162.4) (864.7) – (864.7) (880.2)

Lease liabilities (72.1) – (72.1) (72.1) (72.9) – (72.9) (72.9)

Derivative financial liabilities – (701.5) (701.5) (701.5) – (238.7) (238.7) (238.7)

(2,119.6) (701.5) (2,821.1) (2,864.8) (1,410.7) (238.7) (1,649.4) (1,664.9)

Non-current

Loans and borrowings (7,520.9) (31.6) (7,552.5) (8,133.7) (8,121.7) (3.2) (8,124.9) (9,373.1)

Lease liabilities (321.4) – (321.4) (321.4) (348.1) – (348.1) (348.1)

Derivative financial liabilities – (549.6) (549.6) (549.6) – (452.1) (452.1) (452.1)

(7,842.3) (581.2) (8,423.5) (9,004.7) (8,469.8) (455.3) (8,925.1) (10,173.3)

(9,961.9) (1,282.7) (11,244.6) (11,869.5) (9,880.5) (694.0) (10,574.5) (11,838.2)

Net financial liabilities (6,516.7) 2,039.5 (4,477.2) (5,102.1) (6,771.4) (104.8) (6,876.2) (8,139.9)

(i) Financial assets and liabilities that are measured at amortised cost.

(ii) Financial assets and liabilities that are measured at either Fair Value through Profit and Loss (Derivative Financial Assets and Liabilities) or Fair Value through Other

Comprehensive Income (Unquoted Equity Investments)

322 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Accompanying information continued

A7. Fair value of financial instruments continued

A7.1 Fair value of financial instruments within the group continued

A7.1.1 Basis of determining fair value

Certain assets and liabilities have been classified and carried at amortised cost on inception in line with IFRS 9 criteria. The carrying value

of these assets are approximately equivalent to fair value due to short term maturity aside from loans and borrowings which are subject

to longer maturity dates.

All other financial assets and liabilities are measured at either Fair Value through Profit and Loss (‘FVTPL’) or Fair Value through Other

Comprehensive Income (‘FVTOCI’). Fair values for energy derivatives are based on unadjusted quoted market prices, where actively

traded. For energy derivatives that are not actively traded, interest rate instruments, foreign currency hedge contracts and cross currency

swap contracts associated with foreign currency denominated long-term fixed rate debt, the fair values are determined by reference to

closing rate market prices for similar instruments. Fair values for unquoted equity instruments are derived from venture capital or growth

equity firm valuation statements.

The fair values are stated at a specific date and may be different from the amounts which will actually be paid or received on settlement

of the instruments. The fair value of items such as property, plant and equipment, internally generated brands or the Group’s customer

base are not included as these are not considered financial instruments.

A7.2 Fair value hierarchy

The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair value, grouped

into Levels 1 to 3 based on the degree to which the fair value is observable.

• Level 1 fair value measurements are those derived from unadjusted quoted market prices for identical assets or liabilities.

• Level 2 fair value measurements are those derived from inputs other than quoted prices included within level 1 that are observable for

the asset or liability, either directly (i.e. as prices) or indirectly (i.e. derived from prices).

• Level 3 fair value measurements are those derived from valuation techniques that include inputs for the asset or liability that are not

based on observable market data.

2022

Level 1

£m

2022

Level 2

£m

2022

Level 3

£m

2022

Total

£m

Financial assets

Energy derivatives 884.1 2,246.4 – 3,130.5

Interest rate derivatives – 176.8 – 176.8

Foreign exchange derivatives – 6.1 – 6.1

Loan note receivable – – 136.4 136.4

Unquoted equity investments – – 8.7 8.7

884.1 2,429.3 145.1 3,458.5

Financial liabilities

Energy derivatives – (828.7) – (828.7)

Interest rate derivatives – (376.1) – (376.1)

Foreign exchange derivatives – (46.3) – (46.3)

Loans and borrowings – (31.6) – (31.6)

– (1,282.7) – (1,282.7)

There were no significant transfers out of level 1 into level 2 and out of level 2 into level 1 during the year ended 31 March 2022.

2021

Level 1

£m

2021

Level 2

£m

2021

Level 3

£m

2021

Total

£m

Financial assets

Energy derivatives 68.8 275.9 – 344.7

Interest rate derivatives – 217.6 – 217.6

Foreign exchange derivatives – 23.3 – 23.3

Loan note receivable – – 115.9 115.9

Unquoted equity investments – – 3.6 3.6

68.8 516.8 119.5 705.1

Financial liabilities

Energy derivatives – (138.1) – (138.1)

Interest rate derivatives – (489.7) – (489.7)

Foreign exchange derivatives – (63.0) – (63.0)

Loans and borrowings – (3.2) – (3.2)

– (694.0) – (694.0)

There were no significant transfers out of level 1 into level 2 and out of level 2 into level 1 during the year ended 31 March 2021.

323SSE plc Annual Report 2022

A8. Hedge accounting

A8.1 Cash flow hedges

The Group designates contracts which qualify as hedges for accounting purposes either as cash flow hedges or fair value hedges. Cash

flow hedges are contracts entered into to hedge a forecast transaction or cash flow risk generally arising from a change in interest rates

or foreign currency exchange rates and which meet the effectiveness criteria prescribed by IFRS 9. The Group’s accounting policy on

cash flow hedges is explained in the Accompanying Information section A1.

The following table indicates the contractual maturities of the expected transactions and the qualifying cash flow hedges associated.

Non-Sterling denominated contractual cash flows have been converted at the forward foreign exchange rate.

Cash flow hedges

2022

Carrying

amount

2022

Expected

cash

flows

2022

0-12

months

2022

1-2 years

2022

2-5 years

2022

> 5 years

2021

Carrying

amount

2021

Expected

cash

flows

2021

0-12

months

2021

1-2 years

2021

2-5 years

2021

> 5 years

Interest rate swaps:

Assets 5.7 6.1 – 2.3 3.4 0.4 0.1 0.2 – (0.1) – 0.3

Liabilities – – – – – – (8.4) (8.5) – (1.9) (5.5) (1.1)

5.7 6.1 – 2.3 3.4 0.4 (8.3) (8.3) – (2.0) (5.5) (0.8)

Cross currency swaps:

Assets 160.5 169.9 27.8 96.5 45.6 – 137.1 142.3 4.5 17.0 123.0 (2.2)

Liabilities (132.7) (127.9) (54.2) (19.0) (47.7) (7.0) (157.0) (151.1) (7.6) (98.6) (49.1) 4.2

27.8 42.0 (26.4) 77.5 (2.1) (7.0) (19.9) (8.8) (3.1) (81.6) 73.9 2.0

Forward exchange

contracts:

Assets 0.6 9.6 9.6 – – – 11.7 169.6 169.6 – – –

Liabilities (43.4) 521.8 348.0 137.1 36.7 – (52.6) (890.1) (292.7) (430.7) (166.7) –

(42.8) 531.4 357.6 137.1 36.7 – (40.9) (720.5) (123.1) (430.7) (166.7) –

A8.2 Net investment hedge

The Group’s net investment hedge consists of debt issued in the same currency (€) as the net investment in foreign subsidiaries with €

denominated functional currencies being the Airtricity Supply business and the thermal plants and wind farms in Ireland. The hedge

compares the element of the net assets whose functional cash flows are denominated in € to the matching portion of the € borrowings

held by the Group. This therefore provides protection against movements in foreign exchange rates.

Gains and losses in the hedge are recognised in equity and will be transferred to the income statement on disposal of the foreign operation

(2022: £9.4m gain, 2021: £37.3m gain). Gains and losses on the ineffective portion of the hedge are recognised immediately in the income

statement (2022: £nil, 2021: £nil).

324 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Note

2022

£m

2021

£m

Assets

Equity investments in joint ventures and associates 3 12.7 139.2

Loans to joint ventures and associates 3 129.2 226.8

Investments in subsidiaries 4 1,883.6 2,004.5

Trade and other receivables 5 9,365.5 8,386.5

Derivative financial assets 11 64.6 68.1

Retirement benefit assets 10 517.5 543.1

Non-current assets 11,973.1 11,368.2

Trade and other receivables 5 720.1 902.6

Current tax asset 7 3.8 3.8

Cash and cash equivalents 8 1,006.7 1,564.7

Derivative financial assets 11 112.0 149.5

Current assets 1,842.6 2,620.6

Total assets 13,815.7 13,988.8

Liabilities

Loans and other borrowings 8 968.7 714.7

Trade and other payables 6 2,035.3 2,146.8

Provisions 13 84.0 20.3

Derivative financial liabilities 11 70.6 83.4

Current liabilities 3,158.6 2,965.2

Loans and other borrowings 8 5,284.7 5,723.8

Deferred tax liabilities 7 65.0 49.1

Provisions 13 242.9 –

Derivative financial liabilities 11 301.1 399.4

Non-current liabilities 5,893.7 6,172.3

Total liabilities 9,052.3 9,137.5

Net assets 4,763.4 4,851.3

Equity:

Share capital 9 536.5 524.5

Share premium 835.1 847.1

Capital redemption reserve 49.2 49.2

Hedge reserve 13.3 (14.2)

Retained earnings 2,278.3 1,972.3

Equity attributable to ordinary shareholders of the parent 3,712.4 3,378.9

Hybrid equity 9 1,051.0 1,472.4

Total equity 4,763.4 4,851.3

Result for the year

The profit for the year attributable to ordinary shareholders dealt with in the financial statements of the Company was £902.9m (2021:

£1,726.0m) including an exceptional gain on the disposal of SGN of £1,024.8m, offset by a loss on the disposal of the Company’s

investment in Gas Production of £263.5m.

These financial statements were approved by the Board of Directors on 24 May 2022 and signed on their behalf by

Gregor Alexander, Sir John Manzoni,

Finance Director Chairman

SSE plc

Registered No: SC117119

Company balance sheet

As at 31 March 2022

325SSE plc Annual Report 2022

Statement of changes in equity

capital

£m

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 2021 524.5 847.1 49.2 (14.2) 1,972.3 3,378.9 1,472.4 4,851.3

Profit for the year – – – – 852.2 852.2 50.7 902.9

Other comprehensive income – – – 27.5 (48.0) (20.5) – (20.5)

Total comprehensive income for the year – – – 27.5 804.2 831.7 50.7 882.4

Dividends to shareholders – – – – (862.3) (862.3) – (862.3)

Scrip dividend related share issue 12.0 (12.0) – – 355.7 355.7 – 355.7

Issue of shares – – – – 6.3 6.3 – 6.3

Distributions to Hybrid equity holders – – – – – – (50.7) (50.7)

Redemption of Hybrid equity – – – – (4.6) (4.6) (421.4) (426.0)

Credit in respect of employee

share awards – – – – 20.8 20.8 – 20.8

Investment in own shares (i) – – – – (14.1) (14.1) – (14.1)

At 31 March 2022 536.5 835.1 49.2 13.3 2,278.3 3,712.4 1,051.0 4,763.4

capital

£m

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 2020 523.1 875.6 49.2 (3.6) 966.7 2,411.0 1,169.7 3,580.7

Profit for the year – – – – 1,726.0 1,726.0 46.6 1,772.6

Other comprehensive income – – – (4.4) 6.9 2.5 – 2.5

Total comprehensive income for the year – – – (4.4) 1,732.9 1,728.5 46.6 1,775.1

Dividends to shareholders – – – – (836.4) (836.4) – (836.4)

Scrip dividend related share issue 1.4 (1.4) – – 39.0 39.0 – 39.0

Distributions to Hybrid equity holders – – – – – – (46.6) (46.6)

Issue of Hybrid equity – – – – – – 1,051.0 1,051.0

Redemption of Hybrid equity – – – – (1.7) (1.7) (748.3) (750.0)

Credit in respect of employee

share awards – – – – 19.7 19.7 – 19.7

Investment in own shares (i) – (27.1) – – 24.6 (2.5) – (2.5)

Adjustment in relation to historic

remeasurement of financial instruments,

net of tax (ii) – – – (6.2) 27.5 21.3 – 21.3

At 31 March 2021 524.5 847.1 49.2 (14.2) 1,972.3 3,378.9 1,472.4 4,851.3

(i) Investment in own shares is the purchase of own shares less the settlement of Treasury shares for sharesave schemes.

(ii) Following review of the recognition of certain derivative financial instruments at inception, a revision to the Retained Earnings, Loans and Borrowings and the

Hedge Reserve has been recorded during the prior year. This revision arose through review of the Company’s contractual exposure on certain swap arrangements,

as well as mark-to-market charges on inception previously recognised through the Income Statement. The cumulative effect on opening reserves on 1 April 2020

is an increase of £21.3m, and the single largest line item impacted was Loans and Borrowings which decreased by £58.8m.

Company statement of changes in equity

For the year ended 31 March 2022

326 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the Company financial statements

For the year ended 31 March 2022

1. Principal accounting policies

1.1 General information

SSE plc (the Company) is a company domiciled in Scotland. The address of the registered office is given on the back cover. The Company

financial statements present information about the Company as a separate entity and not about the Group.

1.2 Basis of preparation

The financial statements have been prepared 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 section 408 of the Companies Act 2006 the Company is exempt from the requirement to present its own income statement and

related notes.

It has also taken advantage of the following disclosure exemptions available under FRS 101.

• A Cash flow statement and related notes;

• Related party disclosures;

• Disclosures in respect of capital management; and

• The effects of new but not yet effective IFRSs.

As the consolidated financial statements of SSE plc include the equivalent disclosure, the Company has also taken advantage of the

exemptions, under FRS 101, available in respect of the following disclosure:

• Certain disclosures required by IFRS 13 Fair value measurement and the disclosures required by IFRS 7 Financial instrument disclosures.

The Company previously assessed that, on the basis of materiality, the disclosures required under IFRS 2 Share-based Payment should be

removed. The Company has assessed that at 31 March 2022 these disclosures continue to be immaterial to the Company’s financial

statements.

Going concern

The Directors consider that the Company has adequate resources to continue in operational existence for the foreseeable future (further

details are contained in A6 Accompanying Information of the consolidated financial statements). The financial statements are therefore

prepared on a going concern basis.

Basis of measurement

The financial statements of the Company are prepared on the historical cost basis except for derivative financial instruments, available-

for-sale financial assets and assets of the Company pension scheme which are stated at their fair value, and liabilities of the Company

pension scheme which are measured using the projected unit credit method. The directors believe the financial statements present a

true and fair view. The financial statements of the Company are presented in pounds sterling.

Critical accounting judgements and estimation uncertainty

In the process of applying the Company’s accounting policies, management necessarily makes judgements and estimates that have a

significant effect on the amounts recognised in the financial statements. Changes in the assumptions underlying the estimates could

result in a significant impact to the financial statements. The Group’s key accounting judgement and estimation areas are noted in note

4.1 of the consolidated financial statements, with the most significant financial judgement areas as specifically discussed by the Audit

Committee being highlighted separately. In particular, note 4.1(ii), Retirement Benefit Obligations, and the related disclosures in note 23

of the consolidated financial statements are relevant to the Company.

Significant accounting policies

The significant accounting policies applied in the preparation of these individual financial statements are set out below. These policies

have been applied consistently to all the years presented, unless otherwise stated.

Investments

Investments in subsidiaries are carried at cost less any impairment charges.

Interests in joint arrangements and associates

Associates are those investments over which the Company has significant influence but neither control nor joint control.

The Company’s joint ventures and associates are stated at cost less any impairment.

Applicable Group accounting policies

The following significant accounting policies are consistent with those applied for the Group consolidated financial statements:

• Equity and equity-related compensation benefits (Supplementary information A1.2 )

• Defined benefit pension scheme (Supplementary information A1.2 )

• Taxation (Supplementary information A1.2 )

• Financial instruments (Supplementary information A1 and A6 )

327SSE plc Annual Report 2022

2. Supplementary financial information

2.1 Auditor remuneration

The amounts paid to the Company’s auditor in respect of the audit of these financial statements was £0.4m (2021: £0.4m).

Amounts paid to the Company’s auditor in respect of services to the Company other than the audit of the Company’s financial

statements have not been disclosed as the information is required instead to be disclosed on a consolidated basis.

2.2 Employee numbers

The average number of people employed by the Company (including Executive Directors) during the year was 3 (2021: 3).

The costs associated with the employees of the Company, who are the Executive Directors of the Group, are borne by Group

companies. No amounts are charged to the Company.

2.3 Directors’ remuneration and interests

Information concerning Directors’ remuneration, shareholdings, options, long term incentive schemes and pensions is shown in the

Remuneration Report on pages 168 to 199 . No Director had, during or at the end of the year, any material interest in any other

contract of significance in relation to the Group’s business.

3. Investments in associates and joint ventures

2022 2021

Equity

£m

Loans

£m

Total

£m

Equity

£m

Loans

£m

Total

£m

Share of net assets/cost

At 1 April 139.2 226.8 366.0 12.7 196.8 209.5

Additions – 29.3 29.3 – 42.0 42.0

Disposal (126.5) (118.8) (245.3) – – –

Repayment of shareholder loans – (8.1) (8.1) – (12.0) (12.0)

Transfer from subsidiary – – – 126.5 – 126.5

At 31 March 12.7 129.2 141.9 139.2 226.8 366.0

The disposal recognised during the year of £245.3m relates to the disposal of Company’s investment in SGN, which completed on

22 March 2022.

4. Subsidiary undertakings

Details of the Company’s subsidiary undertakings are disclosed in the Accompanying Information section (A3 ).

Investment in subsidiaries

2022

£m

2021

£m

At 1 April 2,004.5 2,112.9

Decrease in existing investments (i) (120.9) (108.4)

At 31 March 1,883.6 2,004.5

(i) The overall decrease in investments held by the Company primarily relates to the net of: the transfer of SSE Generation Limited investment to another Group company

and the equity shares in the Company awarded to the employees of the subsidiaries of the Group under the Group’s share schemes, which are recognised as an

increase in the cost of investment in those subsidiaries as directed by IFRIC 11 (2022: £18.8m; 2021: £18.1m (both before tax)). Additionally, the Company disposed of

its Gas Production investment on 14 October 2021, which was carried at a £nil value. The decrease in the prior year also includes the transfer of SGN from Beithe AG

to SSE plc and the subsequent reduction in the carrying value of Beithe AG (£126.5m).

5. Trade and other receivables

The balances of current and non-current trade and other receivables in the current and prior financial year predominantly consists of

amounts owed by subsidiary undertakings. At 31 March 2022 the Company assessed its exposure to expected credit losses on related

party receivables under IFRS 9 and held a provision against future losses of £126.5m (2021: £61.0m).

6. Trade and other payables

The balances of current trade and other payables in the current and prior financial year predominantly consists of amounts due to

subsidiary undertakings.

328 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the Company financial statements continued

For the year ended 31 March 2022

7. Taxation

Current tax asset

2022

£m

2021

£m

Corporation tax asset 3.8 3.8

Deferred taxation

The following are the deferred tax liabilities and assets recognised by the Company and movements thereon during the current and prior

reporting periods:

Fair value gains/

(losses) on

derivatives

£m

Retirement

benefit

obligations

£m

Other

£m

Total

£m

At 31 March 2020 (66.8) 101.5 4.3 39.0

Charge/(credit) to income statement 9.9 0.1 (5.0) 5.0

Charge/(credit) to equity 5.2 1.6 (1.7) 5.1

At 31 March 2021 (51.7) 103.2 (2.4) 49.1

Charge/(credit) to income statement (10.2) (0.2) (0.2) (10.6)

Charge/(credit) to equity 5.2 26.4 (5.1) 26.5

At 31 March 2022 (56.7) 129.4 (7.7 ) 65.0

Certain deferred tax assets and liabilities have been offset, including the asset balances analysed in the tables above. The following is an

analysis of the deferred tax balances (after offset) for financial reporting purposes:

2022

£m

2021

£m

Deferred tax liabilities 129.4 103.2

Deferred tax assets (64.4) (54.1)

Net deferred tax (asset)/liability 65.0 49.1

The deferred tax assets/liabilities disclosed include the deferred tax relating to the Company’s pension scheme liabilities.

8. Loans and borrowings

2022

£m

2021

£m

Current

Other short-term loans 968.7 714.7

968.7 714.7

Non-current

Loans 5,284.7 5,723.8

5,284.7 5,723.8

Total loans and borrowings 6,253.4 6,438.5

Cash and cash equivalents (1,006.7) (1,564.7)

Unadjusted Net Debt 5,246.7 4,873.8

Add/(less):

Hybrid equity (note 9) 1,051.0 1,472.4

Adjusted Net Debt and Hybrids 6,297.7 6,346.2

Cash and cash equivalents (which are presented as a single class of assets in the face of the balance sheet) comprise cash at bank and

short term highly liquid investments with a maturity of three months or less.

329SSE plc Annual Report 2022

8.1 Borrowing facilities

The Company has an established €1.5bn Euro commercial paper programme (paper can be issued in a range of currencies and swapped

into sterling) and as at 31 March 2022 there was £506.1m commercial paper outstanding (2021: £nil). The Company also has £1.5bn of

revolving credit facilities (see note 21.1). These facilities continue to provide back-up to the commercial paper programme and, as at

31 March 2022 these facilities were undrawn.

Analysis of borrowings

2022

Weighted

average

interest rate

2022

Face

value

2022

Fair

value

2022

Carrying

amount

2021

Weighted

average

interest rate

2021

Face

value

£m

2021

Fair

value

£m

2021

Carrying

amount

£m

Current

Other short term loans – non-amortising (ii) 0.8% 507.1 507.5 506.1 – – – –

US Private Placement 16 April 2022 4.3% 162.7 197.8 162.7 – – – –

5.875% Eurobond Repayable

22 September 2022 5.9% 300.0 306.1 299.9 – – – –

4.25% Eurobond repayable 14 September 2021 – – – – 4.3% 300.0 305.0 299.8

2.375% €500m Eurobond repayable

10 February 2022 (iv) – – – – 2.4% 415.0 424.6 414.9

Total current borrowings 969.8 1,011.4 968.7 715.0 729.6 714.7

Non-Current

US Private Placement 16 April 2022 – – – – 4.3% 162.7 193.5 162.6

US Private Placement 28 April 2023 2.8% 35.0 35.4 34.9 2.8% 35.0 36.3 34.7

US Private Placement 6 September 2023 2.9% 120.0 120.1 119.4 2.9% 120.0 124.0 119.2

US Private Placement 16 April 2024 4.4% 204.1 250.6 204.0 4.4% 204.1 253.8 203.9

5.875% Eurobond repayable

22 September 2022 – – – – 5.9% 300.0 323.5 299.6

1.75% €700m Eurobond repayable

8 September 2023 (v) 1.8% 514.6 524.0 514.3 1.8% 514.6 538.5 514.1

1.25% Eurobond Repayable 16 April 2025 (vi) 1.3% 531.4 533.4 531.4 1.3% 531.4 557.1 531.4

0.875% €600m Eurobond Repayable

8 September 2025 0.9% 510.9 504.3 504.2 0.9% 510.9 527.0 508.4

US Private Placement 8 June 2026 3.1% 64.0 63.8 63.3 – – – –

US Private Placement 8 June 2026 3.2% 247.1 258.7 244.3 – – – –

Between two and five years 2,227.1 2,290.3 2,215.8 2,378.7 2,553.7 2,373.9

Bank Loans – non-amortising (i) 0.8% 100.0 100.4 100.0 0.8% 100.0 100.4 100.0

US Private Placement 8 June 2026 – – – – 3.1% 64.0 67.7 62.9

US Private Placement 6 September 2026 – – – – 3.2% 247.1 265.8 243.7

US Private Placement 6 September 2027 3.2% 35.0 34.8 34.6 3.2% 35.0 37. 2 34.5

1.375% €650m Eurobond repayable

4 September 2027 (viii) 1.4% 591.4 588.7 590.2 1.4% 591.4 631.8 590.0

8.375% Eurobond repayable on

20 November 2028 8.4% 500.0 659.0 497.2 8.4% 500.0 732.1 496.8

1.750% Eurobond Repayable 16 April 2030 (ix) 1.8% 442.9 439.6 442.9 1.8% 442.9 485.3 442.9

6.25% Eurobond repayable on 27 August 2038 6.3% 350.0 473.3 347.4 6.3% 350.0 539.5 347.3

4.75% $900m NC5.5 Hybrid maturing

16 September 2077 (vii) 4.8% 725.4 727.6 725.1 4.8% 730.0 752.2 729.0

3.625% NC5.5 Hybrid maturing 16 September

2077 3.6% 300.0 301.6 299.9 3.6% 300.0 307.3 299.6

Over five years 3,044.7 3,325.0 3,037. 3 3,360.4 3,919.3 3,346.7

Fair value adjustment (iii) – – 31.6 – – 3.2

Total non-current borrowings 5,271.8 5,615.3 5,284.7 5,739.1 6,473.0 5,723.8

Total borrowings 6,241.6 6,626.7 6,253.4 6,454.1 7,202.6 6,438.5

(i) Balances include term loans and EIB debt and is a mixture of fixed and floating rate debt.

(ii) Balances include Commercial Paper and facility advances (£506.1m of Commercial Paper outstanding at 31 March 2022).

330 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the Company financial statements continued

For the year ended 31 March 2022

8. Loans and borrowings continued

8.1 Borrowing facilities continued

(iii) The fair value adjustment relates to the change in the carrying amount of the borrowings as a result of fair value hedges that are in place. The movement in the

fair value adjustment is recognised in the income statement with a corresponding movement on the hedging instrument also being recognised in the income

statement.

(iv) The 2.375% €500m Eurobond maturing 10 February 2022 has been swapped to Sterling giving an effective interest rate of 3.53%.

(v) The 1.75% €700m Eurobond maturing 8 September 2023 has been swapped to Sterling giving an effective interest rate of 3.16%.

(vi) The 1.250% €600m eurobond maturing 16 April 2025 has been swapped to Sterling giving an effective interest rate of 2.43%.

(vii) The 4.75% $900m NC5.5 Hybrid maturing 16 September 2077 has been swapped to Euros ($605m) and Sterling ($295m) giving an effective interest rate of 2.25%

and 3.29% respectively.

(viii) The 1.375% €650m eurobond maturing 4 September 2027 has been swapped to Sterling giving an effective interest rate of 2.56%.

(ix) The 1.750% €500m eurobond maturing 16 April 2030 has been swapped to Sterling giving an effective interest rate of 2.89%.

9. Equity

Share capital

Number

(millions) £m

Allotted, called up and fully paid:

At 1 April 2020 1,046.3 523.1

Issue of shares (i) 2.8 1.4

At 31 March 2021 1,049.1 524.5

Issue of shares (i) 24.0 12.0

At 31 March 2022 1,073.1 536.5

The Company has one class of ordinary share which carries no right to fixed income. The holders of ordinary shares are entitled to

receive dividends as declared and are entitled to one vote per share at meetings of the Company.

(i) Shareholders were able to elect to receive ordinary shares in place of the final dividend of 56.6p per ordinary share (in relation to year ended 31 March 2021) and

the interim dividend of 25.5p (in relation to the current year) under the terms of the Company’s scrip dividend scheme. This resulted in the issue of 22,201,443 and

1,782,473 new fully paid ordinary shares respectively (2021: 1,918,977 and 883,408). In addition, the Company issued 0.6m (2021: 0.9m) shares during the year

under the savings-related share option schemes (all of which were settled by shares held in Treasury) for a consideration of £6.3m (2021: £10.4m).

Of the 1,073m shares in issue, 5.5m are held as treasury shares. These shares will be held by the Group and used to award shares to

employees under the Sharesave scheme in the UK.

During the year, on behalf of the Company, the employee share trust purchased 0.9m shares for a total consideration of £14.1m (2021:

0.9m shares, consideration of £12.9m) to be held in trust for the benefit of employee share schemes. At 31 March 2022, the trust held

6.3m shares (2021: 7.7m) which had a market value of £110.0m (2021: £112.5m).

Capital redemption reserve

The capital redemption reserve comprises the value of shares redeemed or purchased by the Company from distributable profits.

Hedge reserve

The hedge reserve comprises the effective portion of the cumulative net change in the fair value of cash flow hedge derivative

instruments related to hedged transactions that have not yet occurred.

Hybrid equity

2022

£m

2021

£m

EUR 600m 2.375% perpetual subordinated capital securities – 421.4

GBP 600m 3.74% perpetual subordinated capital securities 598.0 598.0

EUR 500m 3.125% perpetual subordinated capital securities 453.0 453.0

1,051.0 1,472.4

In April 2022 SSE plc issued a €1bn NC6 equity accounted Hybrid bond @ 4% to re-finance the dual tranche debt accounted Hybrid

bonds whose first call date occurs on 16 September 2022 although SSE will take advantage of the 3 month par call option on these

Hybrid bonds meaning the bonds will be repaid on 16 June 2022. The €1bn equity accounted Hybrid bond was left in Euros with the

proceeds used to cover the portion of the maturing Hybrid that was swapped to Euros and a portion of the costs associated with the

acquisition of the European onshore renewables development platform from Siemens Gamesa Renewables Energy.

331SSE plc Annual Report 2022

10. Retirement benefit obligations

Defined benefit scheme

The Company has a funded final salary pension scheme (‘Scottish Hydro Electric Pension Scheme’) which provides defined benefits

based on final pensionable pay. The scheme is subject to an independent valuation at least every three years. The future benefit

obligations are valued by actuarial methods on the basis of an appropriate assessment of the relevant parameters.

Pension summary:

Scheme type

Net actuarial gain/(loss) recognised in

respect of the pension asset in the

statement of comprehensive income

Net pension asset

2022

£m

2021

£m

2022

£m

2021

£m

Scottish Hydro Electric Defined benefit (24.6) 8.6 517.5 543.1

Net actuarial (loss)/gain (24.6) 8.6 517. 5 543.1

IFRIC 14 surplus restrictions

The value of Scottish Hydro Electric Pension Scheme assets recognised was previously impacted by the asset ceiling test which restricts

the surplus that can be recognised to assets that can be recovered through future refunds or reductions in future contributions to the

schemes, and may increase the value of scheme liabilities where there are minimum funding liabilities in relation to agreed contributions.

In 2016/17 the Group agreed with the trustees to the Scottish Hydro Electric pensions scheme an amendment to the scheme rules to

clarify that the Company has a clear right to any surplus upon final winding up of the scheme. This amendment removes the previous

restriction on recognition of any surplus. The net pension asset of the Scottish Hydro Electric Scheme at 31 March 2022 was equal to

£517.5m (2021: £543.1m).

The individual pension scheme details based on the latest formal actuarial valuations are as follows:

Scottish Hydro Electric

Latest formal actuarial valuation 31 March 2021

Valuation carried out by Hymans Robertson

Value of assets based on valuation £2,050.5m

Value of liabilities based on valuation £1,782.2m

Valuation method adopted Projected Unit

Average salary increase RPI +0.5%

Average pension increase RPI

Value of fund assets/accrued benefits 115.1%

10.1 Pension scheme assumptions

The scheme has been updated to 31 March 2022 by qualified independent actuaries. The valuations have been prepared for the purposes

of meeting the requirements of IAS 19. The major assumptions used by the actuaries in the scheme were:

31 March

2022

31 March

2021

Rate of increase in pensionable salaries 4.2% 3.7%

Rate of increase in pension payments 3.7% 3.2%

Discount rate 2.7% 2.0%

Inflation rate 3.7% 3.2%

The assumptions relating to longevity underlying the pension liabilities at 31 March 2022 are based on standard actuarial mortality tables,

and include an allowance for future improvements in longevity. The assumptions, equivalent to future longevity for members in normal

health at age 65, are as follows:

31 March

2022

Male

31 March

2022

Female

31 March

2021

Male

31 March

2021

Female

Currently aged 65 22 24 23 24

Currently aged 45 24 27 25 27

332 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the Company financial statements continued

For the year ended 31 March 2022

10. Retirement benefit obligations continued

10.1 Pension scheme assumptions continued

The impact on the scheme’s liabilities of changing certain of the major assumptions is as follows:

At 31 March 2022 At 31 March 2021

Increase/

decrease in

assumption

Effect on

scheme

liabilities

Increase/

decrease in

assumption

Effect on

scheme

liabilities

Rate of increase in pensionable salaries 0.1% +/-0.1% 0.1% +/-0.1%

Rate of increase in pension payments 0.1% +/-0.9% 0.1% +/-1.0%

Discount rate 0.1% +/-1.0% 0.1% +/-0.9%

Longevity 1 year +/-2.0% 1 year +/-1.8%

These assumptions are considered to have the most significant impact on the scheme valuations. The reduction in sensitivity is due to

the conversion of the longevity swap to buy-in in during the year.

Asset buy-in

On 1 October 2019, the Scottish Hydro Electric Pension Scheme entered into an asset buy-in, transferring the risk of volatility in the

assumptions used to calculate the obligation for 1,800 pensioners and 567 dependents (covering c£800m of the scheme’s liabilities) to

a third party. The asset buy-in is valued under the accounting principles of IFRS 13 and is considered a Level 3 instrument in the fair value

hierarchy. This is in addition to a previous buy-in completed during the year ended 31 March 2018 when c£250m of the scheme’s assets

and liabilities related to 617 pensioners and 190 dependents were transferred to a third party. The Company has now insured against

volatility in obligations related to all pensioners to third parties (insurer PIC) and is now only exposed to valuation fluctuations related

to active and deferred members.

10.2 Valuation of pension scheme

Quoted

£m

Unquoted

£m

Value at

31 March

2022

£m

Quoted

£m

Unquoted

£m

Value at

31 March

2021

£m

Equities 39.5 – 39.5 50.3 – 50.3

Government bonds 719.1 – 719.1 660.9 – 660.9

Insurance contracts – 713.5 713.5 – 780.3 780.3

Other investments 448.9 – 448.9 482.6 – 482.6

Total fair value of plan assets 1,921.0 1,974.1

Present value of defined benefit obligation (1,403.5) (1,431.0)

Surplus in the scheme 517.5 543.1

Deferred tax thereon (i) (129.4) (103.2)

Net pension asset 388.1 439.9

(i) Deferred tax is recognised at 25% (2021: 19%) on the surplus.

333SSE plc Annual Report 2022

10.3 Movements in the defined benefit asset obligations and assets during the year:

2022 2021

Assets

£m

Obligations

£m

Total

£m

Assets

£m

Obligations

£m

Total

£m

At 1 April 1,974.1 (1,431.0) 543.1 1,845.6 (1,311.4) 534.2



Included in income statement

Current service cost – (12.9) (12.9) – (11.4) (11.4)

Past service cost – – – – (1.7) (1.7)

Settlements and curtailments – – – (0.6) 0.6 –

Interest income/(cost) 38.8 (27.9) 10.9 41.5 (29.2) 12.3

 38.8 (40.8) (2.0) 40.9 (41.7) (0.8)



Included in other comprehensive income

Actuarial (loss)/gain arising from:

Demographic assumptions – 13.1 13.1 – (8.1) (8.1)

Financial assumptions – 72.5 72.5 – (161.1) (161.1)

Experience assumptions – (90.6) (90.6) – 5.8 5.8

Return on plan assets excluding interest

income (19.6) – (19.6) 172.0 – 172.0

 (19.6) (5.0) (24.6) 172.0 (163.4) 8.6



Other

Contributions paid by the employer 1.0 – 1.0 1.1 – 1.1

Benefits paid (73.3) 73.3 – (85.5) 85.5 –

 (72.3) 73.3 1.0 (84.4) 85.5 1.1

Balance at 31 March 1,921.0 (1,403.5) 517.5 1,974.1 (1,431.0) 543.1

10.4 Pension scheme contributions and costs

Charges/(credits) recognised:

2022

£m

2021

£m

Current service cost (charged to operating profit) 12.9 11.4

Past service cost – 1.7

12.9 13.1

Charged/(credited) to finance costs:

Interest from pension scheme assets (38.8) (41.5)

Interest on pension scheme liabilities 27.9 29.2

(10.9) (12.3)

The return on pension scheme assets is as follows:

2022

£m

2021

£m

Return on pension scheme assets 19.2 213.5

Employer financed retirement benefit (EFRB) pension costs

The decrease in the year in relation EFRB was £1.1m (2021: increase of £5.8m). This is included in employee related provisions.

Further discussion of the pension scheme assets, liabilities, polices, risk and strategy can be found in note 23 of the Group consolidated

financial statements.

334 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Notes to the Company financial statements continued

For the year ended 31 March 2022

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:

Derivative financial assets

2022

£m

2021

£m

Non-current 64.6 68.1

Current 112.0 149.5

176.6 217.6

Derivative Liabilities

Non-current (301.1) (399.4)

Current (70.6) (83.4)

Total derivative liabilities (371.7) (482.8)

Net liability (195.1) (265.2)

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:

2022 2021

SSE on behalf of

subsidiary

£m

SSE on behalf of

joint operations

and ventures

£m

SSE on behalf of

parties

£m

Total

£m

Total

£m

Bank borrowing 604.6 – – 604.6 754.6

Performance of contracts (i) 3,542.1 976.7 121.9 4,640.7 4,199.2

Subsidiaries have provided guarantees on behalf of the Company as follows:

2022

£m

2021

£m

Bank borrowing 1,286.5 1,494.7

(i) Included within the performance contracts above are guarantees of £nil (2021: £nil) relating to discontinued operations.

Around £367m of guarantees have been provided during the year in connection with Doggerbank Offshore Windfarm Project 3 Projco

Limited and additional £110m of guarantees have also been provided during the year in connection with various entities relating to the

Seagreen Offshore Wind Farm projects. The £150m drawdown facility with the European Investment Bank, guaranteed by SSE plc on

behalf of Scottish Hydro Electric Transmission plc was repaid.

The Company has previously 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 were 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. SSE Contracting Limited, formerly a wholly owned subsidiary,

has provided a guarantee to Tay Street Lighting (Leeds) Ltd, Tay Valley Lighting (Newcastle & North Tayside) Ltd and Tay Valley Lighting

(Stoke on Trent) Ltd in respect of provision and maintenance of public street lighting and illuminated traffic signage. SSE E&P (UK)

Limited, formerly a wholly owned subsidiary of the Company, has provided a guarantee to Hess Limited in respect of decommissioning

liabilities. SSE E&P (UK) Limited has also provided a guarantee to Britoil Limited and Arco British Limited in respect of the acquisition of

the Sean Field. SSE E&P (UK) Limited has also provided a guarantee to Perenco UK Limited in respect of a Sale and Purchase Agreement

for the Minerva, Apollo and Mercury Fields. Scottish Hydro Electric Transmission Plc, a wholly owned subsidiary of the Company, has

provided a guarantee to ABB Limited in connection with the use of HVDC Replica Control Panels for Caithness-Moray Project.

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.

335SSE plc Annual Report 2022

13. Provisions

Decommissioning

£m

Other legal &

restructuring

£m

Total

£m

At 1 April 2020 – 7.0 7.0

Charged in the year – 20.4 20.4

Released during the year – (1.5) (1.5)

Utilised during the year – (5.6) (5.6)

At 31 March 2021 – 20.3 20.3

Charged in the year 251.3 57. 2 308.5

Utilised during the year (1.9) – (1.9)

At 31 March 2022 249.4 77.5 326.9

At 31 March 2022

Non-current 241.8 51.0 242.9

Current 7.6 26.5 84.0

249.4 77.5 326.9

At 31 March 2021

Non-current – – –

Current – 20.3 20.3

– 20.3 20.3

1 The Company has represented the category of its provision to change the category from ‘Other’ to ‘Legal & Restructuring’ to better reflect the provisions held by

the Company.

Decommissioning provision

Provision has been made for the estimated net present value of decommissioning Gas Production assets (retained as part of the disposal

agreement for this business). Estimates are based on the forecast remediation or clean-up costs at the projected date of decommissioning

and are discounted for the time value of money. Within the agreement for the disposal of its Gas Production assets to Viaro Energy on

14 October 2021 (see note 12), the Company agreed to retain 60% (£238.2m) of the decommissioning provision within the business.

£13.1m has been provided for decommissioning since the completion of the disposal due to post disposal movements in inflation and

discounting assumptions. It is expected that the costs associated with decommissioning of these Gas Production assets will be incurred

between 2022 and 2037.

Legal & restructuring provisions

The Company holds provision related to reorganisation of the Group and certain provisions arising on disposal of subsidiaries or investments.

In the year the Company recognised a charge of £35.0m for a tax indemnity provided to RockRose Energy Limited following the disposal of

SSE E&P Limited on 14 October 2021. The tax indemnity is expected to be settled in the next 12-24 months. In the year the Company also

recognised a provision for transaction costs associated with the disposal of its investment in SGN. These costs are expected to be settled in

the next financial year.

336 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Opinion

In our opinion:

• SSE plc’s group financial statements and parent company financial statements (the “financial statements”) give a true and fair view of

the state of the group’s and of the parent company’s affairs as at 31 March 2022 and of the group’s profit for the year then ended;

• the group financial statements have been properly prepared in accordance with UK adopted international accounting standards;

• the parent company financial statements have been properly prepared in accordance with United Kingdom Generally Accepted

Accounting Practice, including FRS101 “Reduced Disclosure Framework”; and

• the financial statements have been prepared in accordance with the requirements of the Companies Act 2006.

We have audited the financial statements of SSE plc (the ‘parent company’) and its subsidiaries (the ‘group’) for the year ended 31 March

2022 which comprise:

Group Parent company

Consolidated income statement for the year ended 31 March 2022

Consolidated statement of comprehensive income for the year

then ended

Consolidated balance sheet as at 31 March 2022 Balance sheet as at 31 March 2022

Consolidated statement of changes in equity for the year

then ended

Statement of changes in equity for the year then ended

Consolidated cash flow statement for the year then ended

Related notes 1 to 26 and A1 to A8 to the group financial

statements, including a summary of significant accounting policies

Related notes 1 to 13 to the company financial statements

including a summary of significant accounting policies

The financial reporting framework that has been applied in the preparation of the group financial statements is applicable law and UK

adopted international accounting standards. The financial reporting framework that has been applied in the preparation of the parent

company financial statements is applicable law and United Kingdom Accounting Standards, including FRS 101 “Reduced Disclosure

Framework” (United Kingdom Generally Accepted Accounting Practice).

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) and applicable law. 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 believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Independence

We are independent of the group and parent in accordance with the ethical requirements that are relevant to our audit of the financial

statements in the UK, including the FRC’s Ethical Standard as applied to listed public interest entities, and we have fulfilled our other

ethical responsibilities in accordance with these requirements.

The non-audit services prohibited by the FRC’s Ethical Standard were not provided to the group or the parent company and we remain

independent of the group and the parent company in conducting the audit.

Conclusions relating to going concern

In auditing the financial statements, we have concluded that the directors’ use of the going concern basis of accounting in the

preparation of the financial statements is appropriate. Our evaluation of the directors’ assessment of the group and parent company’s

ability to continue to adopt the going concern basis of accounting included:

• Confirming our understanding of management’s Going Concern process as well as the review controls in place over the preparation

of the group’s Going Concern model and the memoranda on going concern;

• Engaging early with management to ensure all key matters were considered in their assessment;

• Obtaining management’s board approved forecast cash flows, covenant forecasts and sensitivities prepared by management to

31 December 2023, ensuring the same forecasts are used elsewhere within the group for accounting estimates and that the forecasts

were consistent with the accelerated climate commitments made in November 2021. We tested for arithmetical accuracy of the models

as well as checking the net debt position at the year-end date which is the starting point for the model. We assessed the reasonableness

of the cashflow forecast by analysing management’s historical forecasting accuracy. We also ensured climate change considerations

were factored into future cash flows. We performed reverse stress testing to understand how severe the downside scenarios would need

be to result in negative liquidity or a covenant breach and how plausible were the scenarios. The EY assessment included consideration

of all maturing debt through to 31 March 2024;

• We assessed management ability to raise new external funding by reviewing the strength of subscriptions to the €1bn April 22 bond

issue and the interest in, and rates attached to the £350m Private placement in March 22. We engaged with specialist debt advisory

colleagues to assess SSE’s on going attractiveness to lenders and their ability to continue to raise new debt;

• Reviewing management’s assessment of mitigating options potentially available to the group to reduce cash flow spend in the Going

Concern period, to determine their plausibility and whether such actions could be implemented by management. We have obtained

support to determine whether these were within the control of management and evaluated the impact of these mitigations in light of

our understanding of the business and its cost structures;

Independent auditor’s report to the members of SSE plc

337SSE plc Annual Report 2022

• Read the borrowing facilities agreements to assess their continued availability to the group and to ensure completeness of covenants

identified by management;

• Reviewed market data for indicators of potential contradictory evidence to challenge the company’s going concern assessment

including review of profit warnings within the sector and review of industry analyst reports. We held discussions with the Audit

Committee to confirm the going concern position prepared by management; and

• We considered whether management’s disclosures in the financial statements sufficiently and appropriately reflect the going concern

assessment and outcomes.

The audit procedures performed in evaluating the director’s assessment were performed by the Group audit team, and specialist

colleagues from our capital debt advisory team. We also considered the financial and non-financial information communicated to us

from our component teams for sources of potential contrary indicators which may cast doubt over the going concern assessment.

Our key observations

The group is forecast to continue to be profitable and generate positive cashflows during the going concern period. The group is

forecast to raise new debt to maintain adequate liquidity and headroom within its covenants. The strength of the ability of the group to

raise new funds is evidenced by the successful issue of a £350m private placement in March 22 and a €1bn Hybrid bond in April 22 and

continued strong credit rating agency positions. Our reverse stress test scenario indicated that the group would need to be exposed to

severe downside events impacting profitability and cash flows in order to breach liquidity or covenants. The severe downside scenario

assumed full repayment of debt maturing over the going concern period, no new refinancing over the going concern period, no

uncommitted disposal proceeds, a central contingency against budget performance, offset by mitigating actions within managements

control. Management consider such a scenario to be highly unlikely, however, in such unlikely event management consider that the

impact can be mitigated by further cash and cost saving measures which are within their control, or through external fund raising, or a

combination of both during the going concern period.

The group’s principal source of funding (the revolving credit facility) extends beyond the going concern period (to 2025/2026). Having

considered the severe downside and reverse stress test scenarios, we have not identified a plausible scenario where the Group would be

unable to maintain cash flow liquidity and covenant headroom during the going concern period.

We found the capital commitments in the cash flow forecasts to be aligned with the accelerated climate commitments made in

November 2021.

Going concern conclusion

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually

or collectively, may cast significant doubt on the group and parent company’s ability to continue as a going concern for a period to

31 December 2023.

In relation to the group and parent company’s reporting on how they have applied the UK Corporate Governance Code, we have nothing

material to add or draw attention to in relation to the directors’ statement in the financial statements about whether the directors

considered it appropriate to adopt the going concern basis of accounting.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this

report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability

to continue as a going concern.

Overview of our audit approach

Audit scope

• We performed an audit of the complete financial information of 19 components, audit procedures on specific

balances for a further 16 components and specified procedures for 3 components.

• The components where we performed full or specific audit procedures accounted for 98% of adjusted profit

before tax, 96% of Revenue and 93% of Total assets.

Key audit matters

• Impairment and reversal of impairment of certain power stations and gas storage assets;

• Group and parent pension obligations;

• Accounting for estimated revenue recognised;

• Accounting for the SSE disposal programme.

Materiality

• Overall Group materiality of £57.9m which represents 5% of adjusted profit before tax.

An overview of the scope of the parent company and group audits

Tailoring the scope

Our assessment of audit risk, our evaluation of materiality and our allocation of performance materiality determine our audit scope

for each company within the Group. Taken together, this enables us to form an opinion on the consolidated financial statements. We

take into account size, risk profile, the organisation of the group and effectiveness of group-wide controls, changes in the business

environment and other factors such as recent Internal Audit results when assessing the level of work to be performed at each entity.

338 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

In assessing the risk of material misstatement to the Group financial statements, and to ensure we had adequate quantitative coverage

of significant accounts in the financial statements, of the 149 (2021: 131) reporting components of the Group, we selected 35 (2021: 37)

components (including the parent entity) covering entities within the UK and Ireland, which represent the principal business units within

the Group. Separate procedures were performed in relation to the acquisition accounting in Japan by the Primary team.

Of the 35 components selected, we performed an audit of the complete financial information of 19 (2021: 20) components (“full scope

components”) which were selected based on their size or risk characteristics. For the remaining 16 (2021: 17) components (“specific

scope components”), we performed audit procedures on specific accounts within that component that we considered had the potential

for the greatest impact on the significant accounts in the financial statements either because of the size of these accounts or their risk

profile.

The reporting components where we performed audit procedures accounted for 98% (2021: 95%) of the Group’s adjusted profit before tax,

96% (2021: 94%) of the Group’s Revenue and 93% (2021: 93%) of the Group’s Total assets. For the current year, the full scope components

contributed 78% (2021: 56%) of the Group’s adjusted profit before tax, 94% (2021: 92%) of the Group’s Revenue and 77% (2021: 83%) of the

Group’s Total assets. The specific scope component contributed 20% (2021: 39%) of the Group’s adjusted profit before tax, 2% (2021: 2%) of

the Group’s Revenue and 16% (2021: 10%) of the Group’s Total assets. The audit scope of these components may not have included testing

of all significant accounts of the component but will have contributed to the coverage of significant accounts tested for the Group. We also

instructed 3 locations to perform specified procedures over certain aspects of Cash & Bank, Goodwill and Equity Investments in associates

and JCE, due to significant balances held within each location.

Of the remaining 114 (2021: 97) components that together represent 2% (2021: 5%) of the Group’s adjusted profit before tax, none are

individually greater than 1% (2021: 1%) of the Group’s adjusted profit before tax. For these components, we performed other procedures,

including analytical review, intercompany eliminations and obtaining audit evidence to respond to any potential risks of material

misstatement to the group financial statements.

The charts below illustrate the coverage obtained from the work performed by our audit teams.

78% Full scope components

20% Specific scope components

2% Other procedures

94% Full scope components

2% Specific scope components

4% Other procedures

77% Full scope components

16% Specific scope components

7% Other procedures

PROFIT BEFORE TAX

(OR ADJUSTED PBT MEASURE USED)

REVENUE TOTAL ASSETS

Changes from the prior year

There have been minimal changes in scoping from the prior year. Both SGN and E&P have been removed reflecting the disposals of each

entity. There have been some modifications to specific scope entities to reflect higher levels of trading within certain entities compared

to the prior period to maintain appropriate coverage.

Involvement with component teams

In establishing our overall approach to the Group audit, we determined the type of work that needed to be undertaken at each of the

components by us, as the primary audit engagement team, or by component auditors from other EY global network firms operating

under our instruction. Of the 19 full scope components, audit procedures were performed on 2 of these directly by the primary audit

team. For the 17 full scope and 16 specific scope components, where the work was performed by component auditors, we determined

the appropriate level of involvement to enable us to determine that sufficient audit evidence had been obtained as a basis for our opinion

on the Group as a whole.

The majority of full and specific scope components were led by the lead audit engagement partner, Annie Graham. For the remaining

entities there were regular calls held between the lead audit engagement partner and component partners, with either file reviews

performed by the primary team over audit documentation that has not been retained within the group audit file, or retention of key audit

documentation on the group audit file.

This has been the first audit conducted by EY that was not fully remote due to COVID-19 restrictions. Other than the Irish Airtricity

entities in scope, all other entities in scope were based within Scotland (Perth and Glasgow), where lead audit partner Annie Graham

visited UK divisions throughout the year-end audit. The majority of management meetings continued to be held remotely across both

the UK and Ireland.

Independent auditor’s report to the members of SSE plc continued

339SSE plc Annual Report 2022

These 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

There has been 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. The UK Government’s Net Zero Strategy

outlines plans to decarbonise the UK’s power system by 2035 and Ireland’s Climate Action Plan 2021 is targeting up to 81% emission

reduction from electricity by 2030.

SSE’s long-term net zero ambitions are supported by a series of interim targets approved by the Science Based Targets Initiative (SBTi),

as referenced by SSE within page 54 .

Following on from COP26, in November 2021 SSE plc published new accelerated science-based targets on the 1.5°C power sector

pathway, committing to a £12.5bn five-year investment plan. SSE intend to cut absolute scope 1 and 2 emissions by 72.5% between 2017

and 2030 and are targeting net zero for scopes 1 and 2 by 2040, providing the appropriate policy mechanisms are in place to support

security of supply for customers.

The Group has determined that the most significant future impacts from climate change on its operations will be from variable wind

generation risk caused by changes in climate patterns, storm damage network risk through increased severity of extreme weather events,

accelerated gas closure risk through climate change and wind-capture market risk where the average wholesale power prices are lower as

a result of more zero marginal cost wind generation coming on to the electricity system. These are explained on pages 42 to 55  in the

required Task Force for Climate related Financial Disclosures and on pages 68 to 81  in the principal risks and uncertainties, which form

part of the “Other information,” rather than the audited financial statements. Our procedures on these disclosures therefore consisted

solely of considering whether they are materially inconsistent with the financial statements or our knowledge obtained in the course of

the audit or otherwise appear to be materially misstated.

As explained in note 2 within Accounting judgments and estimation uncertainty governmental and societal responses to climate change

risks are still developing, and are interdependent upon each other, and consequently financial statements cannot capture all possible

future outcomes as these are not yet known. The degree of certainty of these changes may also mean that they cannot be taken into

account when determining asset and liability valuations and the timing of future cash flows under the requirements of IAS 36. Budgets

and forecasts for SSE plc reflect the £12.5bn investment programme announced by SSE in November 2021. In notes 15 and 20 to the

financial statements supplementary sensitivity disclosures reflecting the impact of climate with regards to valuation of property, plant

and equipment, impairment assessment of goodwill and valuation of decommissioning provisions and the impact of reasonably possible

changes in key assumptions have been provided and significant judgements and estimates relating to climate change have been

described within the aforementioned notes. We have ensured the completeness of climate consideration as part of our impairment

audit procedures, including those referred to within our impairment KAM below.

In order to respond to the impact of climate change, we ensured we had the appropriate skills and experience on the audit team. Our

audit team included professionals with significant experience in climate change and energy valuations. Our audit procedures were carried

out by the group and component teams, with the component teams working under the direction of the group team.

Our audit effort in considering climate change was focused on ensuring that the effects of material climate risks disclosed on pages 42

to 55  have been appropriately reflected in asset values and useful life and associated disclosures where values are determined through

modelling future cash flows, being Impairment considerations over Intangible assets and PP&E, and in the timing and nature of liabilities

recognised, being decommissioning provisions. Details of our procedures and findings on impairment are included in our key audit

matters below. We also challenged the Directors’ considerations of climate change in their assessment of going concern and viability

and associated disclosures.

In addition, in connection with our audit of the financial statements, we read the Other information in the annual report and Accounts

and, in doing so, considered whether the Other information is materiality inconsistent with the financial statements, or our knowledge

obtained in the audit or otherwise appeared to be materially misstated.

Whilst the group have stated their commitment to the Paris Agreement to achieve net zero emissions by 2050, and also to their

acceleration plan of their net zero ambitions which plans a 5 year, 10 year and 30 year roadmap, there may still be some areas in which

the group currently unable to determine the full future economic impact on their business model, operational plans and customers to

achieve this and therefore as set out above the potential impacts are incorporated to the extent of management’s best estimate at

31 March 2022.

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.

340 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Risk Our response to the risk

Key observations communicated

to the Audit Committee

Impairment or reversal of impairment

of certain power stations & gas

storage assets (Impairment reversal

2022: £428.9m, Impairment charge

2021: £58.1m)

Refer to the Audit Committee Report

(page 157 ); Accounting policies

(page 222 ); and note 15.2 of the

Consolidated Financial Statements

(page 264 )

Forecast based estimate:

Certain power stations and gas storage

assets are at risk of impairment or

impairment reversal. This is due to a

number of global and national factors

reducing or increasing their value

in use or fair value less cost of sale,

triggering an impairment assessment.

Our risk focussed on the following

power stations: Peterhead, Keadby,

Medway Marchwood, Great Island,

Tarbet power plants and Aldborough

and Atwick gas storage assets.

The key assumptions include future

power prices, price volatility, forecast

power demand, carbon prices,

discounting, useful economic life

and operating expenditure.

The estimated recoverable amount

is subjective due to the inherent

uncertainty involved in forecasting

and discounting future cash flows

as a result of the above factors.

In the current year the risk has moved

from impairment to impairment

reversals.

Scoping:

Testing was performed over this risk area, covering both full

and specific scope components (covering six components),

which represented 100% of the risk amount.

All audit work in relation to this key audit matter was

undertaken by the component audit teams, with oversight

from the group audit team.

We obtained management’s assessment of potential

impairment indicators in accordance with IAS 36 for

powerplants and for gas storage assets.

Audit procedures included:

We have understood management’s process and

methodology for assessing assets for indicators of

impairment, including indicators of reversal and, where

applicable, we have understood management’s modelling

of value in use cash flows including the source of the key

input assumptions.

We checked the historical accuracy of management’s

forecasting and verified that the assumptions are consistent

with those used in other areas.

We considered prior period impairments for indication of

reversal. This involved considering indicators of reversal,

focussed on demand and gas prices, review of historic

impairment charges now requiring reversal in full and

consideration of future assumptions impacting reversal

considerations.

We involved three EY specialists in our assessment: a

specialist with energy industry experience; a discount

rate specialist and a specialist with experience of assessing

forward energy prices. Using our sector experience and our

specialists, we assessed any unusual or unexpected trends

identified within the cashflows year on year and assessed

the impact on the overall forecasted position.

We understood the basis for refinements to useful

economic life assessment. We considered incremental

repairs and capital expenditure required for the extensions

and obtained management’s assessment of the technical

feasibility of the extensions and reviewed the extension to

the revised contracted power period.

We embedded modelling expertise within the audit team

to assess the appropriateness of the model parameters and

clerical accuracy of the models used.

We applied sensitivities to management’s models to evaluate

headroom, including sensitivities relating to climate change

reflecting useful life assessment versus climate commitments

and price and margin sensitivities.

Key assumptions:

Using our sector experience and our specialists we

benchmarked to industry sources, where appropriate,

the directors’ judgement on the key assumptions including,

power prices, forecast power demand, carbon prices and,

discount rates.

We verified that the assumptions are consistent with those

used in other areas.

Disclosures:

We assessed the accuracy and adequacy of the disclosures in

line with IAS 36, ensuring key assumptions are included and

that the disclosures adequately reflect the risks inherent in the

valuation of non-current assets and the impact of changes in

assumptions on the reversal of impairment booked or

headroom remaining.

We confirmed that the

impairment reversal of

£331.4m recognised by

management for all Power

Plants listed except Tarbert

and £97.3m for Gas Storage

assets was appropriate and

was driven predominately

by increased market driven

demand and price

assumptions and was correctly

recorded in the current period.

We communicated that

the pricing assumptions

applied were appropriate.

We concluded that the 3 year

extension in useful economic

life on Keadby plant and 1 year

extension on Medway plant

was supportable and that

the appropriate costs of

which were reflected in the

impairment models. The other

assumptions were in line with

EY assessment of expected

future price movements and

we highlighted the significant

headroom on the power

plant assets.

We also noted that we are

satisfied with the adequacy

of disclosure within the group

financial statements including

climate related disclosures.

Independent auditor’s report to the members of SSE plc continued

341SSE plc Annual Report 2022

Risk Our response to the risk

Key observations communicated

to the Audit Committee

Group and parent pension obligation

(2022: £584.9m, 2021: £357.0m)

Refer to the Audit Committee Report

(page 156 ); Accounting policies

(page 222 ); and note 23 of

the group financial statements

(page 282 )

Subjective valuation:

Small changes in the assumptions and

estimates used to value the group and

parent company pension obligations

(before deducting scheme assets)

would have a significant effect

on the carrying value of those

pension obligations.

The effect of these matters is that,

as part of our risk assessment, we

determined that the group’s and parent

company’s pension obligation has a

high degree of estimation uncertainty,

with a potential range of reasonable

outcomes greater than our materiality

for the financial statements as a whole.

Additional focus in FY22 has been

given to the results of the SHEPS

pension triennial valuation completed

in 2021.

The financial statements (note 4.1(ii))

disclose the estimation uncertainty

identified by the group and company.

There has been no change in this risk

from the prior year, however additional

procedures have been performed to

consider the results of the triennial

valuation for SHEPS.

Scoping:

We performed audit procedures over this risk area centrally

by the group team, which covered 100% of the risk amount.

Our procedures included:

Assessing management process:

We have understood management’s process and

methodology for calculating the pension liability for

each scheme, including discussions with management’s

external actuaries, walkthrough of the processes,

understanding the key inputs and the design and

implementation of key controls. We performed a

fully substantive audit approach rather than testing

the operating effectiveness of key controls.

For the SHEPS scheme we checked the member data

used in the triennial valuation for consistency with that

of the IAS 19 valuation and understood the difference in

basis for key assumptions which we found to be in line

with our expectations.

Assessing management experts:

We have assessed the independence, objectivity and

competence of the group’s external actuaries, which

included understanding of the scope of services being

provided and considering the appropriateness of the

qualifications of the external actuary.

Assessing source data:

We tested a sample of the membership data used by the

actuaries to the group’s records. We performed an additional

sample for source data used for the SHEPS triennial

valuation to ensure consistency of source data used.

Benchmarking assumptions:

With the support of our pension actuarial specialists, we

assessed the appropriateness of the assumptions adopted

by the directors by comparing them to the expectations of

our pension actuarial specialists which they derived from

broader market data.

Disclosure:

We considered the adequacy of IAS 19 disclosures, including

presentation of commitments associated with deficit

recovery plans and in respect of sensitivity of the defined

benefit obligation to changes in the key assumptions.

We conclude that

management’s actuarial

assumptions are appropriate

and sit in the centre of our

independently determined

range. We are satisfied with

the adequacy of disclosure

within the financial

statements.

342 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Risk Our response to the risk

Key observations communicated

to the Audit Committee

Accounting for estimated revenue

recognition (2022: £492.7m, 2021:

£325.0m)

Refer to the Audit Committee

Report (page 157 )); Accounting

policies (page 222 )); and note 18

of the group financial statements

(page 271 ))

Subjective estimate:

68% of the unbilled revenue is

recognised within the Business Energy

division and is based on estimates of

values and volumes of electricity and

gas supplied between last meter date

and year end date.

The method of estimating such

revenues is complex, judgemental and

significant for UK business customers

and requires estimates and assumptions

in relation to:

1. the volumes of electricity and gas

supplied to the customers between

the meter reading and year-end;

2. the value attributed to those

volumes in the range of tariffs; and

3. embedded impairment risk over the

unbilled revenue.

As a result of the estimation uncertainty

this has been identified as a significant

risk.

There has been no change in this risk

from the prior year.

Scope:

This balance relates to one component, Business Energy.

Testing was performed covering 100% of the balance in

Business Energy which accounts for 68% of the unbilled

balance at 31 March 2022.

All audit work in relation to this key audit matter was

undertaken by the component audit teams with oversight

from the group audit team.

Audit methodology:

Our response to the assessed risk included understanding

the process for estimating unbilled revenue, testing selected

IT general and application key controls, substantive audit

procedures and revenue data analytics.

Tests of detail:

We agreed the opening unbilled accrued income to the

closing 31 March 2021 balance sheet.

We agreed the volume data for customer usage of energy

in the year used in the calculation to external settlement

systems and agreed the volume data in relation to customer

billings for the year to SSE’s internal billing systems to assess

for consistency and to understand remaining estimation risk.

We have tested the unbilled unit pricing by agreeing

historical pricing to sample bills, sensitising the pricing to

understand the impact of different pricing assumptions,

tested a sample of billing dates from the listing to confirm

billing frequency and agreeing to post year end billing prices.

We have understood and tested the historical accuracy

of management’s forecasting of unbilled revenue by

comparing estimates to final billed and settlement amounts.

We considered contra indicators to management’s

assumptions by assessing the impact of macro economic

conditions on demand and consumption volatility and

benchmarked assumptions in the underlying unbilled

calculations to external publications from the industry.

Analytical review:

We set expectations as to the likely level of total unbilled

revenue, and compared this with actual unbilled revenue,

obtaining explanation for significant variances.

We compared the unbilled revenue estimation to benchmark

expectation. Benchmark expectation was derived from the

external settlements data combined with billing frequency at

an MPAN (Meter Point Administration Number) level, usage

and price movement from last billing date to year end. We

have analysed and assessed explanations for variances arising

from the benchmark expectation. We also tested the

appropriateness of manual adjustments made by

management.

Disclosure:

We assessed the adequacy of the group’s disclosures about

the degree of estimation and judgement involved in arriving

at the estimated revenue.

We have performed our

procedures over revenue

within the Business Energy

business and we are satisfied

that the accrued revenue

recognised by management

in relation to unbilled revenue

is appropriately recognised.

Independent auditor’s report to the members of SSE plc continued

343SSE plc Annual Report 2022

Risk Our response to the risk

Key observations communicated

to the Audit Committee

Accounting for the SSE disposal

programme (2022 continuing

exceptional loss £17.6m,

discontinuing exceptional gain

£576.5m):, 2021 exceptional gain:

£976.0m)

Refer to the Audit Committee

Report (page 157 ); Accounting

policies (page 294 ); and note 12

of the group financial statements

(page 252 )

Subjective estimate:

SSE announced a £2bn disposal

programme in FY21, which has

continued into FY22.

There is a significant risk in relation to

the appropriate accounting for the

disposals as a result of the complexity

in the final negotiated deal, specifically

considering any risk regarding complex

terms per the SPA or non-cash

consideration elements, warranty

provisions and any transitional services

arrangements arising.

The risk is focussed on the following

key areas:

Disposals in the current period:

• E&P (divestment of 100%

ownership)

• SGN (divestment of remaining 33%

ownership)

• Contracting (divestment of 100%

ownership)

• Doggerbank C (divestment of 10%

of ownership)

Disposals in the prior period with

ongoing material contingent or

deferred consideration:

• Seagreen (divestment of 51%

ownership)

• Slough Multifuel (divestment of 50%

ownership)

This risk has been amended in the

current year to reflect ongoing

disposals and significant contingent or

deferred consideration assessments.

Scope:

Testing was performed across the primary and component

teams for 77% of the disposal programme. The SGN

divestment, and any held for sale considerations were

audited by the group audit team.

Where audit work in relation to this key audit matter

was undertaken by the component audit teams, this was

supported with oversight from the group audit team.

Audit procedure performed:

Disposals in the current period

We obtained and read the signed Share Purchase

Agreements (SPA) and any subsequent amendments

in relation to each of the disposals.

We identified key matters within these agreements that

could have a potential impact on the calculation of the

disposal proceeds and the resulting gain/loss on disposal,

including transitional services arrangements. We ensured

key matters were agreed to supporting evidence and

appropriately reflected in the gain/loss calculation.

We agreed the cash consideration received to the SPA and

traced cash receipts to bank accounts.

Where disposed of in the current year, we verified that the

initial held for sale date was appropriate and appropriate

accounting commenced upon this date.

We verified that the balances that related to the entity were

deconsolidated from the group financial statements at the

date of disposal.

This included verifying that the assets and liabilities

disposed of were adjusted accordingly to reflect closing

adjustments in line with the SPA.

Where a change in control was identified we have assessed

this under IFRS 10 and IFRS 11 to ensure that appropriate

classification and accounting treatment has been applied.

We have assessed non-cash consideration terms within the

deals and assessed the appropriateness of the accounting

for contingent consideration recognised at 31 March 2022.

We have checked that the completion obligations and

warranties and any disposal costs have been correctly

accounted for within the gain/loss on sale calculations.

Past disposals:

We have re-assessed management’s assumptions and

received an update on key matters which could change

the original assessment of contingent consideration for

past disposals.

We conclude that the

accounting for the current

year disposals is appropriate.

We are satisfied that the

contingent consideration

recognised is appropriate.

We are satisfied that the

group financial statements

appropriately disclose these

transactions.

There are no significant changes from the KAMs disclosed in the prior year audit report, other than modification of the disposal

programme to focus on the current year disposals and the consideration of a wider scope with regards to impairment and to include

impairment reversals.

344 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Our application of materiality

We apply the concept of materiality in planning and performing the audit, in evaluating the effect of identified misstatements on the

audit and in forming our audit opinion.

Materiality

The magnitude of an omission or misstatement that, individually or in the aggregate, could reasonably be expected to influence the

economic decisions of the users of the financial statements. Materiality provides a basis for determining the nature and extent of our

audit procedures.

We determined materiality for the Group to be £57.9m (2021: £54.1m), which is 5% (2021: 5%) of adjusted profit before tax.

We believe that adjusted profit before tax provides us with consistent measure of underlying year-on-year performance as it excludes

the impact of non-recurring items as well as recurring items (namely movement on operating and financing derivatives) which can

significantly fluctuate year-on-year and do not provide a true picture of the profit benchmark that would affect the decisions of the

users of the financial statements.

We determined materiality for the Parent Company to be £95.0m (2021: £97.0m), which is 2% (2021: 2%) of Net Assets. The materiality

has been capped at the group materiality of £57.9m.

Starting basis

Adjustments

Materiality

• Profit before tax – £3,482.2m

• Movement on operating and financing derivatives – (£2,121.4m)

• Non-recurring exceptional items – (£269.2m)

• JV Tax – £46.3m

• Variance from forecast to actual PBT – £21.1m

• Totals £1,159m adjusted profit before tax

• Materiality of £57.9m (5% of materiality basis)

Performance materiality

The application of materiality at the individual account or balance level. It is set at an amount to reduce to an appropriately low level the

probability that the aggregate of uncorrected and undetected misstatements exceeds materiality.

On the basis of our risk assessments, together with our assessment of the Group’s overall control environment, our judgement was that

performance materiality was 50% (2021: 50%) of our planning materiality, namely £28.9m (2021: £27.0m). We have set performance

materiality at this percentage due to the differences identified during the prior year audit.

Audit work at component locations for the purpose of obtaining audit coverage over significant financial statement accounts is undertaken

based on a percentage of total performance materiality. The performance materiality set for each component is based on the relative scale

and risk of the component to the Group as a whole and our assessment of the risk of misstatement at that component. In the current year,

the range of performance materiality allocated to components was £4.9m to £15.9m (2021: £3.9m to £7.9m).

Reporting threshold

An amount below which identified misstatements are considered as being clearly trivial.

We agreed with the Audit Committee that we would report to them all uncorrected audit differences in excess of £2.9m (2021: £2.7m),

which is set at 5% of planning materiality, as well as differences below that threshold that, in our view, warranted reporting on qualitative

grounds.

We evaluate any uncorrected misstatements against both the quantitative measures of materiality discussed above and in light of other

relevant qualitative considerations in forming our opinion.

Other information

The other information comprises the information included in the annual report set out on pages 1 to 203 , including the strategic

report and the directors’ report set out on pages 1 to 111  and 112 to 203  respectively, other than the financial statements and our

auditor’s report thereon. The directors are responsible for the other information contained within the annual report.

Our opinion on the financial statements 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.

Independent auditor’s report to the members of SSE plc continued

345SSE plc Annual Report 2022

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the

financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify such

material inconsistencies or apparent material misstatements, we are required to determine whether this gives rise to a material misstatement

in the financial statements themselves. If, based on the work we have performed, we conclude that there is a material misstatement of the

other information, we are required to report that fact.

We have nothing to report in this regard.

Opinions on other matters prescribed by the Companies Act 2006

In our opinion, the part of the directors’ remuneration report to be audited has been properly prepared in accordance with the

Companies Act 2006.

In our opinion, based on the work undertaken in the course of the audit:

• the information given in the strategic report and the directors’ report for the financial year for which the financial statements are

prepared is consistent with the financial statements; and

• the strategic report and the directors’ report have been prepared in accordance with applicable legal requirements.

Matters on which we are required to report by exception

In the light of the knowledge and understanding of the group and the parent company and its environment obtained in the course of the

audit, we have not identified material misstatements in the strategic report or the directors’ report.

We have nothing to report in respect of the following matters in relation to which the Companies Act 2006 requires us to report to you if,

in our opinion:

• adequate accounting records have not been kept by the parent company, or returns adequate for our audit have not been received

from branches not visited by us; or

• the parent company financial statements and the part of the Directors’ Remuneration Report to be audited are not in agreement with

the accounting records and returns; or

• certain disclosures of directors’ remuneration specified by law are not made; or

• we have not received all the information and explanations we require for our audit.

Corporate Governance Statement

We have reviewed the directors’ statement in relation to going concern, longer-term viability and that part of the Corporate Governance

Statement relating to the group and company’s compliance with the provisions of the UK Corporate Governance Code specified for our

review by the Listing Rules.

Based on the work undertaken as part of our audit, we have concluded that each of the following elements of the Corporate

Governance Statement is materially consistent with the financial statements or our knowledge obtained during the audit:

• Directors’ statement with regards to the appropriateness of adopting the going concern basis of accounting and any material

uncertainties identified set out on page 92 ;

• Directors’ explanation as to its assessment of the company’s prospects, the period this assessment covers and why the period is

appropriate set out on page 86 ;

• Director’s statement on whether it has a reasonable expectation that the group will be able to continue in operation and meets its

liabilities set out on page 203 ;

• Directors’ statement on fair, balanced and understandable set out on page 153 ;

• Board’s confirmation that it has carried out a robust assessment of the emerging and principal risks set out on page 68 and 161 ;

• The section of the annual report that describes the review of effectiveness of risk management and internal control systems set out

on page 161 ; and

• The section describing the work of the audit committee set out on page 152 .

Responsibilities of directors

As explained more fully in the directors’ responsibilities statement set out on page 203 , the directors are responsible for the

preparation of the financial statements and for being satisfied that they give a true and fair view, and for such internal control as the

directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether

due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the group and parent company’s ability to continue as

a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the

directors either intend to liquidate the group or the parent company or to cease operations, or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements

Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement,

whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance,

but is not a guarantee that an audit conducted in accordance with ISAs (UK) will always detect a material misstatement when it exists.

Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be

expected to influence the economic decisions of users taken on the basis of these financial statements.

346 SSE plc Annual Report 2022

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 have spoken with the SSE head of regulation to confirm our understanding.

• We understood how SSE plc is complying with those frameworks by making enquiries of management, internal audit, those responsible

for legal and compliance procedures and the company Secretary. We verified our enquiries through our review of board minutes and

papers provided to the Audit Committee.

• We assessed the susceptibility of the group’s financial statements to material misstatement, including how fraud might occur by meeting

with management from various parts of the business to understand where it considered there was susceptibility to fraud. We also

considered performance targets and their propensity to influence on efforts made by management to manage earnings. We considered

the programmes and controls that the group has established to address risks identified, or that otherwise prevent, deter and detect fraud;

and how senior management monitors those programmes and controls. Where the risk was considered to be higher, we performed

audit procedures to address each identified fraud risk.

• Based on this understanding we designed our audit procedures to identify non-compliance with such laws and regulations. Our

procedures involved: journal entry testing, with a focus on manual consolidation journals and journals indicating large or unusual

transactions based on our understanding of the business; enquiries of legal counsel, group management, internal audit, business area

management at all full and specific scope management; and focused testing. In addition, we completed procedures to conclude on

the compliance of the disclosures in the annual report and accounts with all applicable requirements.

A further description of our responsibilities for the audit of the financial statements is located on the Financial Reporting Council’s

website at https://www.frc.org.uk/auditorsresponsibilities. This description forms part of our auditor’s report.

Other matters we are required to address

• Following the recommendation from the audit committee we were appointed by the company on 18 July 2019 to audit the financial

statements for the year ending 31 March 2020 and subsequent financial periods.

• The period of total uninterrupted engagement including previous renewals and reappointments is 3 years, covering the years ending

31 March 2020 to 31 March 2022.

• The audit opinion is consistent with the additional report to the audit committee.

Use of our report

This report is made solely to the company’s members, as a body, in accordance with Chapter 3 of Part 16 of the Companies Act 2006.

Our audit work has been undertaken so that we might state to the company’s members those matters we are required to state to them in

an auditor’s report and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility to anyone

other than the company and the company’s members as a body, for our audit work, for this report, or for the opinions we have formed.

Annie Graham (Senior statutory auditor)

for and on behalf of Ernst & Young LLP, Statutory Auditor

Glasgow

24 May 2022

Independent auditor’s report to the members of SSE plc continued

347SSE plc Annual Report 2022

SSE consolidated segmental statement for the year ended 31 March 2022

Electricity Generation

Aggregate

Generation

business

Electricity supply Gas supply

Aggregate

Supply

business

Year ended 31 March 2022 Unit Thermal Renewable Non-domestic Non-domestic

Total revenue £m 1,050.3 1,071.4 2,121.7 2,086.2 237.3 2,323.5

Sales of electricity & gas £m 541.8 864.5 1,406.3 2,086.2 237.3 2,323.5

Other revenue £m 508.5 206.9 715.4 – – –

Total operating costs £m 763.1 414.4 1,177.5 2,121.9 218.6 2,340.5

Direct fuel costs £m 148.5 – 148.5 1,080.1 157.1 1,237.0

Transportation costs £m 93.4 115.6 209.0 474.6 38.4 513.0

Environmental & social obligation costs £m 165.4 – 165.4 464.7 1.4 466.1

Other direct costs £m 261.5 47.5 309.0 9.0 1.8 10.8

Indirect costs £m 94.3 251.3 345.6 93.6 20.0 113.6

EBITDA £m 287. 2 657.0 944.2 (35.7) 18.7 (17.0)

Depreciation and Amortisation £m 71.7 183.5 255.2 3.8 0.7 4.5

EBIT £m 215.5 473.5 689.0 (39.5) 18.0 (21.5)

Volume

TWh/

mTherms

10.7 9.0 19.7 12.6 218.0

WACOF/E/G £/MWh/p/th 13.9 – 85.4 72.0

Customer numbers ‘000s 403.0 67.9 470.9

Basis of preparation and disclosure notes

The Group’s operating segments are those used internally by the board to run the business and make strategic decisions. The types of

products and services from which each reportable segment derives its revenues are:

Business area Reported segments Description

Continuing operations

Transmission

SSEN

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.

Distribution

SSEN

Distribution

The economically regulated lower voltage distribution of electricity to customer premises in the North

of Scotland and the South of England. This now includes the result from the Group’s out of area

networks business. Revenue earned from delivery of electricity supply to customers is recognised

based on the volume of electricity distributed to those customers and the set customer tariff. The

revenue earned from other distribution services such as domestic customer connections is recognised

in line with delivery of that service over the expected contractual period and at the contracted rate.

Renewables

SSE Renewables

(covered by CSS)

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. Revenue from physical generation

of electricity sold to SSE EPM is recognised as generated, based on the contracted or spot price at the

time of delivery. Revenue from national support schemes (such as Renewable Obligation Certificates

or the Capacity Market) may either be recognised in line with electricity being physically generated or

over the contractual period, depending on the underlying performance obligation.

Thermal

SSE Thermal

(covered by CSS)

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 sold to SSE EPM is recognised as generated,

based on the contract or spot price at the time of delivery. Revenue from national support schemes

(such as the Capacity Market) and ancillary generation services may either be recognised in line with

electricity being physically generated or over the contractual period, depending on the underlying

performance obligation.

Gas Storage The operation of gas storage facilities in the UK, utilising capacity to optimise trading opportunity

associated with the assets. Contribution arising from trading activities is recognised as realised based

on the executed trades or withdrawal of gas from caverns.

Consolidated segmental statement

For the year ended 31 March 2022

348 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Consolidated segmental statement continued

For the year ended 31 March 2022

Business area Reported segments Description

Energy

Customer

Solutions

Business Energy

(covered by CSS)

The supply of electricity 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.

EPM & I

Energy Portfolio

Management

and Investments

(EPM&I)

The provision of a route to market for the Group’s Renewable, Thermal and commodity procurement

for the Group’s energy supply businesses in line with the Group’s 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.

Discontinued operations

EPM & I

Gas Production The production and processing of gas and oil from North Sea fields. Revenue is recognised based on

the production that has been delivered to the customer at the specified delivery point, at the

applicable contractual market price.

Gas

Distribution

SGN SSE’s share of Scotia Gas Networks, which operates two economically regulated gas distribution

networks in Scotland and the South of England. The revenue earned from transportation of natural

gas to customers is recognised based on the volume of gas distributed to those customers and the set

customer tariff.

The Group’s reportable operating segments for ‘Renewables’, ‘Thermal Generation’ and ‘Business Energy’ are substantially aligned to the

business segments reported in the Consolidated Segmental Statement (CSS). However, it should be recognised that there are differences

between the two disclosures, primarily driven by the Licence requirements – these are described in the notes below and shown in the

table reconciling the CSS to the financial statements.

How the accounts are presented

The financial information presented in the CSS is based on operating activities of the Group’s electricity generation businesses

(“Renewables” and “Thermal Generation” segments described above) and the non-domestic electricity and gas supply business (“Business

Energy” segment described above) in Great Britain. The paragraphs that follow describe how SSE’s Renewable and Thermal Generation

and Business Energy (non-domestic supply) businesses interact with Energy Portfolio Management (EPM), which is the Group’s energy

markets business. The basis of preparation defines the revenues, costs and profits of each business and describe in more detail the transfer

pricing arrangements in place for the financial year ended 31 March 2022. The CSS has been prepared on a going concern basis as set out

in note A6.3  of SSE plc’s Annual Report.

349SSE plc Annual Report 2022

Summary

The Group’s ‘Renewables’ business sells electricity and Renewable Obligation Certificates (ROCs) from onshore and offshore windfarms

and qualifying hydro to the Group’s EPM business.

‘Thermal Generation’ sells electricity in respect of gas generation to EPM. It also receives external income in respect of ancillary services,

balancing market participation and other contractual arrangements with third parties including government. It purchases its requirement

for gas, oil and carbon from EPM.

‘Business Energy’ sells electricity and gas to circa 0.5m business customer accounts in Great Britain and procures electricity, gas REGOS,

RGGOs and ROCs from EPM.

EPM acts as a route to market for Renewables and Thermal Generation and as counterparty with the external market for the

procurement of electricity and gas for SSE Energy Services and Business Energy. EPM does not form part of the CSS as it is not within the

scope defined by Ofgem. The policies governing the forward hedging activity undertaken by EPM are overseen by Energy Markets Risk

Committee, whose responsibilities and roles are described on page 162  of SSE Annual Report for the year ended 31 March 2022.

Renewable Electricity Generation

The Renewables profit and loss account above is based on the Group’s electricity generation activity derived from natural sources of

energy to produce electricity which includes wind, hydro and pump storage powered generation.

Renewables as presented in the CSS includes revenue and operating profit for wholly owned renewable generation assets and also

a proportion of turnover and operating profit in respect of joint ventures, joint operations and associate generation companies

. The

principal Joint Ventures, Joint Operations and Associates included are Beatrice Offshore Windfarm Limited, Clyde Windfarm (Scotland)

Limited, Stronelairg Windfarm Limited, Dunmaglass Windfarm Limited and Greater Gabbard Offshore Winds Ltd. A full list can be found

in note A3 of SSE’s audited financial statements.

The Renewables profitability statement bears the risks and rewards for plant performance and renewable generation output, changes in

the power price achieved for renewable generation and the impact of weather.

Individual line items in the Renewables profit and loss account above are comprised of:

Revenue From Sales of Electricity – revenue is recognised as generated and supplied to the national settlements body. Revenue is sold

to the wholesale market through EPM at either the spot price at the time of delivery, or trade price where that trade is eligible for ‘own

use’ designation. Revenue includes the sale of ROCs generated from qualifying plant to EPM. Generation volumes are the volume of

power actually sold to the wholesale market.

Other Revenue – includes ancillary services, capacity income, balancing market participation and other miscellaneous income.

Transportation Costs – include Use of System charges and market participation costs.

Other Direct Costs – include power purchase agreement (‘PPA’) costs, site costs and management charges from EPM.

Indirect Costs – include salaries and other people costs, asset maintenance, rates, corporate costs and IT charges.

Depreciation and Amortisation – the depreciation shown in the CSS is the underlying charge based on the useful remaining life

of the assets.

1 The PPA’s that SSE has with its joint venture companies Clyde Windfarm (Scotland) Limited, Stronelairg Windfarm Limited and Dunmaglass Windfarm Limited

provide SSE with contractual entitlement to 100% of the output of the windfarms. Accordingly, SSE has reported its rights to those volumes within its Renewables

statistics and has also, as mandated by Ofgem, included 50% of the JV revenue in the CSS.

Thermal Electricity Generation

The Thermal profit and loss account above is based on the Group’s conventional (thermal) electricity generation activity. Conventional

generation is considered to be any generation where fuel is consumed to produce electricity and includes gas and oil fuelled generation.

Thermal Generation as presented in the CSS includes revenue and operating profit for wholly owned thermal generation assets and also

a proportion of turnover and operating profit in respect of joint ventures

. The principal joint ventures included are Seabank Power Ltd

and Marchwood Power Ltd. A full list can be found in note A3  of SSE’s audited financial statements.

The Thermal Generation profitability statement bears the risks and rewards for plant performance, changes in market ‘spark’ (the

marginal profit for generating electricity by gas), changes in government and EU policy particularly surrounding emissions.

Individual line items in the Thermal profit and loss account above are comprised of:

Revenue From Sales of Electricity – revenue is recognised as generated and supplied to the national settlements body. Revenue is sold

to the wholesale market through EPM at either the spot price at the time of delivery, or trade price where that trade is eligible for ‘own

use’ designation. Generation volumes are the volume of power sold to the wholesale market.

350 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Consolidated segmental statement continued

For the year ended 31 March 2022

Other Revenue – includes ancillary services, capacity income, balancing market participation and other miscellaneous income.

Direct Fuel Costs – Thermal Generation procures fuel and carbon from EPM at wholesale market prices. The cost of fuel also includes

the long term external purchase contracts and the impact of financial hedges. The WACOF (weighted average cost of fuel) calculation

includes the costs of carbon emissions (reported in the environmental and social obligations cost line in the CSS).

Transportation Costs – include Use of System charges and market participation costs.

Environmental and Social Costs – include carbon costs.

Other Direct Costs – include power purchase agreement (‘PPA’) costs, site costs and management charges from EPM.

Indirect Costs – include salaries and other people costs, asset maintenance, rates, corporate costs and IT charges.

Depreciation and Amortisation – the depreciation shown in the CSS is the underlying charge based on the useful remaining life of the

assets and excludes exceptional asset impairments.

2 The tolling arrangements that SSE has with its joint venture companies Seabank Power Ltd (ended 30 September 2021) and Marchwood Power Ltd provide SSE

with contractual entitlement to 100% of the output of the power stations. Accordingly, SSE has reported its rights to those volumes within its Thermal Generation

statistics and has also, as mandated by Ofgem, included 50% of the JV revenue in the CSS.

Business Energy (Non-domestic)

Revenue from Sales of Electricity and Gas – revenues are the value of electricity and gas supplied to business customers in Great Britain

during the year and includes an estimate of the value of units supplied between the date of the last bill and the year end. Non-domestic

volumes are expressed at customer meter point. RCRC has been allocated to direct fuel costs in the year ended 31 March 2022. In the

year ended 31 March 2021 this was allocated to Revenue.

Direct Fuel Costs – Business Energy does not engage in the trading of electricity and gas and procures all of its electricity and gas

from EPM. The method by which EPM procures energy is at an arm’s length arrangement on behalf of Business Energy is governed by

Business Energy’s forward hedging policy. The forward trades between Business Energy and EPM are priced at wholesale market prices

at the time of execution and any differences in volume and reconciliation at the time of delivery is marked to the spot price on the day.

WACOG (weighted average cost of gas) also includes all Allocation reconciliations and Unidentified Gas. The WACOE and WACOG also

consist of trades marked to wholesale prices when committed at the point of sale for fixed price customer contracts or when a customer

instructs SSE to purchase energy in respect of flexi-priced contracts. This transfer pricing methodology reflects how Business Energy

actually acquired its energy. There have been no material changes in the transfer pricing policy in respect of Business Energy since the

CSS for the financial year ending 31 March 2022.

Transportation Costs – these include transportation, transmission and distribution use of system costs and BSUOS.

Environmental and Social Obligation Costs – relate to policies designed to modernise and decarbonise the energy system in Great

Britain and include ROCs, Feed in Tariff, charges under the Capacity Mechanism and CfD schemes and charges in relation to ‘assistance

for areas with high electricity distribution costs’ (AAHEDC). REGO, RGGOs and GOO costs related to these schemes are also included in

this section of the CSS. Industry Mutualisation costs have also been allocated to this element of the statement.

Other Direct Costs – include: industry settlement costs, management and market access charges from EPM and other miscellaneous

costs.

Indirect Costs – include: sales and marketing, customer service, bad debts and collections, metering costs, commercial costs, central

costs – including information technology, property, corporate, telecoms costs and costs incurred to meet Smart Metering rollout

obligations for the year. Where costs cannot be directly allocated to a fuel (electricity/gas), they have been allocated using costing

models based on activity, customer revenue or customer numbers – whichever is the most appropriate.

Business Energy’s profit and loss account bears the risk and rewards arising from the volatility in demand for energy, caused by the

weather, consumption per customer and customer churn. It is also exposed to swings in wholesale costs and the uncertainty surrounding

its share of government environmental and social schemes.

351SSE plc Annual Report 2022

EPM

EPM is responsible for optimising the Group’s electricity, gas and other commodity requirements. The hedging activity undertaken by

EPM is governed by the Group’s Energy and Markets Risk Committee in accordance with the Statement on SSE’s Approach to Hedging

published in November 2018.

Business functions

The business functions in SSE have already been described in this document. The column headed ‘Not included in the CSS’ principally

relates to EPM.

Business function Note Generation Supply

Not included

in CSS

Operates and maintains generation assets ✓

Responsible for scheduling decisions 1 P/L F

Responsible for interactions with the Balancing Market 2 P/L F

Responsible for determining hedging policy 3 ✓ ✓

Responsible for implementing hedging policy/makes decisions to buy/sell energy 4 P/L P/L F

Interacts with wider market participants to buy/sell energy 5 ✓

Holds unhedged positions (either short or long) 3 ✓ ✓ ✓

Procures fuel for generation P/L F

Procures allowances for generation P/L F

Holds volume risk on positions sold (either internal or external) ✓ ✓

Matches own generation with own supply 6 ✓

Forecasts total system demand 7 P/L P/L F

Forecasts wholesale price P/L P/L F

Forecasts customer demand 8 P/L F

Determines retail pricing and marketing strategies ✓

Bears shape risk after initial hedge until market allows full hedge 9 P/L P/L F

Bears short term risk for variance between demand and forecast 10 ✓

Key:

✓ function and P&L impacting that area;

P/L profit/losses of function recorded in that area;

F function performed in that area.

Glossary and notes

1 “Scheduling decisions” means the decision to run individual power generation assets.

2 “Responsible for interactions with the Balancing Market” means interactions with the Balancing Mechanism in electricity.

3 Hedging policy was the responsibility of the Energy Markets Risk Committee which is a sub committee of the SSE Executive Committee.

4 SSE EPM implements the hedging policy determined by the Energy Markets Risk committee on behalf of Renewables, Thermal Generation, Business Energy and

SSE Energy Services.

5 “Interacts with wider market participants to buy/sell energy” means the business unit responsible for interacting with wider market participants to buy/sell energy,

not the entity responsible for the buy/sell decision itself, which falls under “Responsible for implementing hedging policy/makes decisions to buy/sell energy”.

6 “Matches own generation with own supply” means where there is some internal matching of generation and supply before either generation or supply interact

with the wider market. The total electricity demand for Business Energy and SSE Energy Services (expressed at NBP) was 19.2TWh and the total UK Generation

output was 13.7TWh (71%).

7 “Forecasts total system demand” means forecasting total system electricity demand or total system gas demand.

8 “Forecasts customer demand” means forecasting the total demand of own supply customers.

9 “Bears shape risk after initial hedge until market allows full hedge” means the business unit which bears financial risk associated with hedges made before the

market allows fully shaped hedging.

10 “Bears short term risk for variance between demand and forecast” means the business unit which bears financial risk associated with too little or too much supply

for own customer demand.

352 SSE plc Annual Report 2022

FINANCIAL STATEMENTS

Reconciliation of CSS to SSE Financial Statements 2021/22

The table below shows how the CSS reconciles with the adjusted earnings before tax in the SSE financial statements (note 5 of SSE’s

financial statements):

Reconciliation of CSS to Financial Statements Note

Revenue

£m

EBIT

£m

Business Energy

CSS Supply – Business Energy 2,323.5 (21.5)

Total Business Energy in SSE Financial Statements 2,323.5 (21.5)

Generation Business

Renewables

CSS Renewables Electricity Generation 1,071.4 473.5

Non-GB Generation 1 98.8 30.3

JVs/Associates revenue in CSS 2 (394.0) –

Non-recurring disposal gains 3 – 64.3

Total Renewables in SSE Financial Statements 776.2 568.1

Thermal

CSS Thermal Electricity Generation 1,050.3 215.5

Non-GB Generation 4 258.2 90.8

JVs/Associates revenue in CSS 2 (179.3) –

Total Thermal in SSE Financial Statements 1,129.2 306.3

There are some differences between SSE’s financial statements and the CSS. There are items which are in the financial statements and

not in the CSS; and also there are items which Ofgem has requested be included in the CSS which are not in the financial statements.

Notes

1 Non-GB Electricity Generation relates to SSE’s Renewables business in the Republic of Ireland and Northern Ireland;

2 SSE applies equity accounting for the majority of its investments in JVs and Associates (which means it only includes its share of the profits/losses), in accordance

with International Financial Reporting Standards (IFRS). The Ofgem mandated basis of preparation of the CSS requires that the proportionate share of revenue, costs

and profits are shown in the CSS. The revenue shown in the CSS for JVs and Associates is not present in the financial statements and is therefore a reconciling item.

The share of profits however are present in both CSS and financial statements, therefore no reconciliation is necessary;

3 During the year the Group disposed of a 10% stake in Doggerbank C, recognising total gain on disposal of £64.3m (see note 12 of SSE’s Annual Report). The gain

has been excluded from the regulated revenue and profit presented in the CSS, but is included in the underlying operating profit within the financial statements in

accordance with the Group’s accounting policy for such divestments;

4 Non-GB Electricity Generation relates to SSE’s Thermal business in the Republic of Ireland.

Adjustments to reported profit before tax

SSE focuses its internal and external reporting on ‘adjusted profit before tax’ which excludes exceptional items, re-measurements arising

from IFRS 9, depreciation on fair value uplifts and removes taxation on profits of joint ventures and associates, because this reflects the

underlying profits of SSE, reflects the basis on which it is managed and avoids the volatility that arises out of IFRS 9. Therefore, these

items have been excluded from the CSS.

Consolidated segmental statement continued

For the year ended 31 March 2022

353SSE plc Annual Report 2022

Opinion

We have audited the financial statements of SSE plc (the Company) for the year ended 31 March 2022, which comprise the Consolidated

Segmental Statement (CSS), Basis of preparation, Reconciliation of CSS to the Annual Report of SSE plc and the related disclosure notes. The

financial reporting framework that has been applied in their preparation is a special purpose framework comprising the financial reporting

provisions of Ofgem’s Standard condition 16B of Electricity Generation licences and Standard 19A of Electricity and Gas Supply Licences.

In our opinion, the accompanying CSS of the Company for the year ended 31 March 2022 is prepared, in all material respects, in

accordance with the requirements of Standard condition 16B of Electricity Generation licences and Standard 19A of Electricity and Gas

Supply Licences and the basis of preparation on pages 347 to 351 .

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (UK) (ISAs (UK)) including ‘ISA (UK) 800 (Revised) Special

Considerations – Audits of Financial Statements Prepared in Accordance with Special Purpose Frameworks’. Our responsibilities under

those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We

are independent of the company in accordance with the ethical requirements that are relevant to our audit of the financial statements in

the UK, including the FRC’s Ethical Standard, and we have fulfilled our other ethical responsibilities in accordance with these requirements.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Conclusions relating to going concern

In auditing the CSS, we have concluded that the directors’ use of the going concern basis of accounting in the preparation of the

financial statements is appropriate.

Based on the work we have performed, we have not identified any material uncertainties relating to events or conditions that, individually

or collectively, may cast significant doubt on the company’s ability to continue as a going concern for a period of 19 months through to

31 December 2023.

Our responsibilities and the responsibilities of the directors with respect to going concern are described in the relevant sections of this

report. However, because not all future events or conditions can be predicted, this statement is not a guarantee as to the group’s ability

to continue as a going concern.

Emphasis of matter – basis of accounting and restriction on distribution and use

We draw attention to pages 347 to 351  of the CSS, which describe the basis of accounting. The CSS is prepared to assist the Company

in complying with the financial reporting provisions of the contract referred to above. As a result, the CSS may not be suitable for another

purpose. Our report is intended solely for the Company, in accordance with our engagement letter dated 10 May 2022, and should not be

distributed to or used by parties other than the Company. Our opinion is not modified in respect of this matter.

Other information

The other information comprises the information included in the annual report, other than the CSS and our auditor’s report thereon. The

directors are responsible for the other information contained within the annual report.

Our opinion on the CSS does not cover the other information and, except to the extent otherwise explicitly stated in this report, we do

not express any form of assurance conclusion thereon.

Our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with

the financial statements or our knowledge obtained in the course of the audit or otherwise appears to be materially misstated. If we identify

such material inconsistencies or apparent material misstatements, we are required to determine whether there is a material misstatement in

the CSS itself. If, based on the work we have performed, we conclude that there is a material misstatement of the other information, we are

required to report that fact.

We have nothing to report in this regard.

Responsibilities of directors

Management is responsible for the preparation of the CSS in accordance with the financial reporting provisions of Section Z of the

contract, and for such internal control as management determines is necessary to enable the preparation of CSS that are free from

material misstatement, whether due to fraud or error.

In preparing the CSS, management is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as

applicable, matters relating to going concern and using the going concern basis of accounting unless management either intends to

liquidate the Company or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Company’s financial reporting process.

CSS audit opinion

354 SSE plc Annual Report 2022