SSE PLC (LSE:SSE) is expected to benefit from changes to the administrative strike price for the UK’s sixth allocation round (AR6) of renewable energy capacity next year.
The UK government has revised the contracts-for-difference (CfD) strike price for offshore wind projects, under the AR6 framework, increasing them by 66% to £73 per megawatt-hour of power delivered.
SSE’s renewables business, which has the largest pipeline of UK and Ireland offshore assets, stands to be “the biggest beneficiary” of the contracted energy price increase, according to analysts.
They have increased their share price expectations, seeing fair value in the energy company’s stock at £2,050 per share, up from £1,789.5.
Deutsche Bank analysts also raised their price target for the energy company earlier this month.
Analysts at RBC Capital Markets said in a research note on Wednesday that they also expect to see “a material increase in returns” for the energy company’s transmission business.
The energy company is expected to benefit from the network price controls due to be laid out in December under the RIIO-T3 framework, which will last from 2026 to 2031.
Price controls for electricity distribution, known as RIIO-ED2, are in place to cover the five-year period from 1 April this year to 31 March in 2028.
“The ED2 return was set prior to a material further increase in rates which we expect will be reflected in RIIO-T3,” RBC Capital Markets analysts said in a research note.
“Global competition for capital inflows should benefit SSE as Ofgem looks to attract networks investment in competition with both Europe and the US.”
SSE’s balance sheet is comfortably within its target net debt to underlying earnings range and is unlikely to suffer from financing issues affecting some of its peers, analysts added.