SSE PLC: Navigating Challenges to Achieve 2026/27 EPS Targets – A Renewable Energy Investment Play?

SSE PLC (LON:SSE) has reaffirmed its fiscal 2026/27 earnings per share (EPS) guidance of 175–200 pence, signaling confidence in its ability to deliver on its strategic initiatives amid operational headwinds. The question for investors is: Can SSE sustain its trajectory toward these targets, and what does this mean for renewable energy investments?

Reaffirmed Targets: A Steady Hand Amid Shifting Winds

The company's EPS guidance for 2026/27 remains anchored by its NZAP Plus (Net Zero Acceleration Programme Plus), a £3 billion capital investment strategy focused on renewables and regulated networks. SSE's 2024/25 results provided a mixed picture: adjusted EPS of 160.9 pence met the revised guidance (155–160 pence), but profits at its thermal business, SSE Thermal, dropped sharply due to falling spark spreads as energy markets stabilized post-pandemic.

Despite these challenges, SSE's renewables division delivered 13.0 terawatt-hours (TWh) of generation in 2024/25, a 17% year-on-year increase, driven by new capacity and favorable weather. This bodes well for future targets, as renewables remain a core growth lever.

Operational Challenges: Navigating Headwinds

The 2024/25 results highlighted two critical risks:
1. Market Volatility: SSE Thermal's adjusted operating profit fell from £835.5 million to £211.4 million as energy prices normalized. While this was anticipated, it underscores reliance on volatile commodity markets.
2. Regulatory and Policy Delays: SSE faces hurdles in securing consents for transmission projects like ASTI and LOTI, with some approvals delayed into 2025. These delays could push back capital expenditure timelines, impacting cash flow.

Strategic Support: UK Government Backing for Renewables

A key tailwind comes from the UK Government's Comprehensive Spending Review (SR25), which allocated £9.4 billion to advance carbon capture and storage (CCS) projects, including SSE's involvement in the Acorn project (Aberdeenshire) and the Viking cluster (Humber).

• Acorn's Progress: Development funding of £200 million has been secured to repurpose existing pipelines, enabling CO₂ transport to North Sea storage sites. This supports SSE's goal of capturing 18 million tonnes of CO₂ annually by the 2030s.
• Hydrogen Integration: The projects align with SSE's strategy to leverage low-carbon power generation and hydrogen production, critical for decarbonizing industrial sectors.

The government's commitment to £14.2 billion for the Sizewell C nuclear plant and £13.2 billion for energy efficiency upgrades further strengthens the UK's clean energy ecosystem, reducing SSE's reliance on volatile gas markets.

Risks and Uncertainties

• Grid Infrastructure Delays: Despite the government's Clean Power 2030 plan, bottlenecks in grid upgrades could delay project timelines. SSE's offshore wind pipeline, including the Dogger Bank A project, requires timely grid connections to avoid constraint costs.
• Global Energy Markets: SSE's thermal division remains exposed to gas price fluctuations. While renewables reduce this risk, a prolonged gas price rebound could pressure margins.
• Regulatory Dependency: Projects like Acorn rely on policy stability. A shift in government priorities could disrupt timelines and funding.

Investment Outlook: A Balanced Play on Renewables

SSE's reaffirmed guidance and government support suggest it is well-positioned to meet its 2026/27 EPS targets, provided execution risks are managed. Key catalysts include:
- Final investment decisions for Acorn and Viking, expected in the next 12–18 months.
- Regulatory approvals for transmission projects, critical for grid expansion.
- Renewables growth, with 17% YoY generation growth in 2024/25 hinting at scalability.

Investment Thesis:
- Hold for income seekers: SSE's 5.2% dividend yield (as of July 2025) offers stability, though growth may be constrained by operational headwinds.
- Buy for long-term renewables exposure: SSE's role in UK CCS and hydrogen projects positions it as a beneficiary of the energy transition.

Conclusion

SSE's reaffirmed EPS targets are achievable but hinge on overcoming regulatory and market execution risks. For investors, the company represents a value-oriented play in the renewable energy sector, with downside protection from its regulated networks and upside from government-backed decarbonization initiatives. While volatility may persist in the near term, SSE's strategic focus on NZAP Plus and CCS projects makes it a compelling long-term investment in the UK's net-zero future.

Consider diversifying exposure to other renewable firms or hedging against energy price risks for a balanced portfolio.