Severn Trent power costs rise by 75% despite self generation

Power costs at water company Severn Trent increased by 75% year on year in the six months to 30 September, it said in a trading statement today (22 November). But the company said the cost increase was “much less than the average wholesale energy price increases of more than 121% year-on-year” and it benefitted from higher revenues for energy generated from its own resources.
Power costs rose by £41.1 million to £95.7 million for the period and there were other knock-on energy effects: the cost of energy intensive chemicals increased by £9.5 million over the period.
However, Severn Trent also saw £11.5 million additional generation revenue in its Bioresources business due to higher energy prices, while Ebitda for its Green Power business was up 177% (from £6.2 million to £17.2 million) on turnover up 40% (from £26.2 million to £36.7 million).
Year-end guidance said net power costs for the group are expected to be c.£50 million higher year-on-year. Power costs up by around £100 million would be offset by higher revenue of £25 million in each of the Bioresources and Green Power businesses.
CFO James Bowling said “Pumping water and waste water treatment are energy intensive activities and, in common with other large users of energy, we have seen significant increases in energy prices. However, our industry-leading position in energy generation from our Bioresources and Green Power businesses has mitigated the impact on our earnings and, after regulatory cost sharing, offset the economic impact for shareholders.”
In contrast United Utilities chief executive Steve Mogford said “We are not immune to widespread macro challenges resulting from high levels of inflation, but we are relatively well placed… we have power commodity prices locked-in on 96 per cent of our forecast consumption for this financial year at an average price of £85/MWh compared to the market cap of £211/MWh.”
Nevertheless, increases in the remaining power cost and the increasing cost of energy intensive chemicals will contribute to operating costs that are expected to be around £130 million higher year-on-year. He said, “The largest increases have been to power and chemical costs while we have experienced smaller inflationary increases to labour and other contract costs.”