Deutsche Bank has lifted its price target for SSE PLC (LSE:SSE) to 2,900p from 2,850p, with the view that the UK government’s proposed Wholesale Contracts for Difference could become a derisking tool for one of the utility’s most exposed earnings streams.
The broker, which also repeated its 'buy' rating, said the new voluntary market mechanism would offer long-term fixed-price contracts to low-carbon generators currently selling power at market prices.
That matters for SSE because part of its wind generation remains exposed to wholesale power prices, creating both earnings volatility and policy risk.
Deutsche analyst James Brand modelled a scenario in which 8TWh of SSE’s market-exposed wind output is converted into Wholesale CfDs at real prices of £40-50/MWh.
“This could lead to near-term earnings downside of 5-8% if adopted early in 2027/28, and 2-5% in 2028/29,” Brand said in a note.
The trade-off, however, is visibility.
Deutsche Bank said the impact could become more neutral, or even positive, by the early 2030s, while materially reducing risk in the largest market-price-exposed part of SSE’s business.
“It could significantly reduce risk at the largest market price exposed part of SSE, and also lower future government policy risk,” Brand added.
Deutsche Bank’s revised target implies around 9% upside for SSE shares.