SCOTTISH POWER UK PLC
ANNUAL REPORT AND ACCOUNTS
FOR THE YEAR ENDED 31 DECEMBER 2022
Registered No. SC117120
Scottish Power UK plc Annual Report and Accounts 2022
1 STRATEGIC REPORT
50 DIRECTORS’ REPORT
57 INDEPENDENT AUDITOR’S REPORT
66 CONSOLIDATED STATEMENT OF FINANCIAL POSITION
68 CONSOLIDATED INCOME STATEMENT
69 CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
69 CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
70 CONSOLIDATED STATEMENT OF CASH FLOWS
71 NOTES TO THE CONSOLIDATED ACCOUNTS
129 COMPANY STATEMENT OF FINANCIAL POSITION
130 COMPANY STATEMENT OF COMPREHENSIVE INCOME
130 COMPANY STATEMENT OF CHANGES IN EQUITY
131 COMPANY STATEMENT OF CASH FLOWS
132 NOTES TO THE COMPANY ACCOUNTS
CONTENTS
Some of the statements contained herein are forward looking statements about Scottish Power UK plc and its subsidiaries, and Iberdrola, S.A.’s
strategic plans. Although Scottish Power UK plc and Iberdrola, S.A. believe that the expectations reflected in such statements are reasonable, the
statements are not guarantees as to future performance and undue reliance should not be placed on them.
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Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
The directors present their Strategic Report on the Scottish Power UK plc Group (“the Group”) for the year ended 31 December 2022.
SCOTTISHPOWER TODAY
ScottishPower: creating a better future, quicker,
by delivering a low-carbon future for the UK
WHO WE ARE
Scottish Power UK plc (“the Company”), registered company number SC117120, acts as the holding
company of the Scottish Power UK plc Group (“the Group”) whose activities comprise the generation,
transmission and distribution of electricity, energy management and the supply of electricity and
gas principally in the United Kingdom (“UK”). The Company is a wholly-owned subsidiary of lberdrola,
S.A. (“Iberdrola”), one of the largest utility companies in the world and a leader in renewable energy.
Scottish Power Limited (“SPL”) is the UK holding company of the Scottish Power Limited Group
(“ScottishPower”) of which the Company is a member.
The three divisions operated by the Group during the year were Energy Networks, Renewables, and
Energy Retail and Wholesale, which are owned by their respective Head of Business Sub-holding
companies: Scottish Power Energy Networks Holdings Limited (“SPENH”), ScottishPower Renewable
Energy Limited (“SPREL”), and Scottish Power Retail Holdings Limited (“SPRH”).
The Head of Business Sub-holding companies have their own boards of directors with the necessary
autonomy to carry out the day-to-day management and effective administration of their division.
Further information regarding the corporate governance and board structure of ScottishPower is set
out in the ‘Corporate Governance section’ of the Directors’ Report’ on page 50.
OUR ACTIVITIES
The Group has three divisions:
Energy Networks
Energy Networks is responsible for three regulated electricity network businesses in the UK. These
businesses are ‘asset-owner companies’, holding the regulated assets and electricity transmission
and distribution licences of the Group, and are regulated monopolies. They own and operate the
network of cables and power lines transporting electricity to around 3.5 million connected
customers in the Central Belt and South of Scotland, Cheshire, Merseyside, North Shropshire and
North Wales.
Renewables
Renewables is responsible for the origination, development, construction and operation of renewable
energy generation plants, principally onshore and offshore wind, with a growing presence in battery
storage and solar. Renewables’ ambitious growth plans include expansion of our existing onshore
portfolio harnessing a 5.9 gigawatts (“GW”) pipeline, investing in new large-scale onshore wind and
solar deployment and Battery Energy Storage Systems (“BESS”). Renewables’ 41 wind farms produce
over 2.8 GW of clean, renewable energy which supplies the equivalent of more than 2 million homes.
Energy Retail and Wholesale
Energy Retail, also known as our Customers business, is responsible for the supply of electricity and
gas to almost five million domestic and business customers throughout the UK, including customer
registration, billing and handling enquiries in respect of these services. Energy Retail is also
responsible for the associated metering activity, including the smart meter installation programme,
and for managing the Group’s smart solutions activities which launched the UK’s first nationwide
installation service for air source heat pumps, solar panels, batteries and electric vehicle (“EV”)
charging in 2022. In a pioneering strategic move to support the UK’s efforts to achieve ‘net zero’ by
2050, Energy Retail’s Hydrogen department was established in 2020 and is working with businesses
to seek appropriate green hydrogen solutions.
Energy Wholesale is responsible for managing the Group’s exposure to the UK wholesale electricity
and gas markets for Energy Retail and Renewables, and the optimisation of gas storage.
2022 financial
highlights
1 Additions to Intangible assets (refer to Note 6 on
page 88), additions to Property, plant and equipment
and reassessment of decommissioning asset within
Property, plant and equipment (refer to Note 2A2.2 on
page 72 and Note 7 on page 90).
2 Net debt has been restated to include Interest
receivable from Iberdrola Group companies. Refer to
‘Liquidity and cash management’ section of Strategic
Report.
REVENUE
£8,434.9m
(2021 £5,349.7m)
OPERATING
PROFIT
£834.5m
(2021 £720.4m)
CAPITAL
INVESTMENT
£930.1m
1
(2021 £999.0m)
NET DEBT
£(5,360.2)m
2
(2021 £4,524.0m)
Group Strategic Report for the year ended 31 December 2022
OUR PURPOSE, VALUES, STRATEGY AND ROLE
Iberdrola and ScottishPower are “committed to an energy model that prioritises
the wellbeing of people and the preservation of the planet.”
OUR PURPOSE
Shaping the future of energy in the UK
We were the first integrated energy utility in the UK to have 100% of its generation of electricity derived from renewable energy sources. Our focus is
on wind energy, smart grids, and driving the change to a cleaner, electric future. We are playing a leading role in the delivery of a clean, low-carbon
system for the UK, currently investing the equivalent of £8 million every working day between 2023 to 2025 to create a better future, quicker.
With our plans to invest significantly in renewables generation and the electricity network infrastructure that will support the green transition, we are
well-placed to contribute to the UK achieving its net zero ambitions. In November 2022, as part of the €47 billion investment programme announced
by Iberdrola, ScottishPower confirmed plans for £6.7 billion of investment in clean energy between 2023 and 2025 across our Energy Networks and
Renewables divisions and set out our ambitions for the years beyond. Under these plans, we expect to significantly extend our existing renewable
generation capacity, including the development of the East Anglia Hub (“EA Hub”) offshore wind complex, which is, through ScottishPower, Iberdrola’s
biggest investment anywhere in the world and one of the largest offshore wind projects globally.
The UK has led the world in decarbonising the power sector, but if we are to deliver the UK Government’s ambition of generating 95% of electricity from
low-carbon sources by 2030, we need to accelerate. To meet the UK’s net zero target, the amount of renewable generation that needs to be connected
will increase significantly. So too, will levels of electricity demand, as we move to cleaner forms of transport and heating.
In April 2022, the UK Government’s Energy Security Strategy set a new target of 50 GW of offshore wind (including up to 5 GW of floating offshore wind)
by 2030 and emphasised the importance of strategic investment in a smarter, modernised energy network, with the ambition of delivering a zero-
carbon power system by 2035.
Our Renewables and Energy Networks divisions made further progress in supporting the delivery of these goals by securing a record number of green
energy infrastructure projects during 2022. For Renewables, these projects have included the award, as part of the ScotWind auction, of seabed rights
for three offshore projects (two in partnership with Shell) with total capacity of 7 GW; and success for 16 renewable energy projects (offshore, onshore
and solar) across the UK in being granted Contracts for Difference (“CfDs”) through the Allocation Round 4 process. For Energy Networks, in November
2022, the UK’s energy regulator (The Office of Gas and Electricity Markets (“Ofgem”)) issued its Final Determination on the RIIO-ED2 distribution price
control, which will run from 2023 to 2028. The five-year investment package is expected to facilitate a £3 billion upgrade to Energy Networks’
distribution network. Funding for a number of significant green energy network infrastructure projects progressed during the year, including the
development of strategic transmission network proposals laid out in the Electricity System Operator’s (“ESO’s”) Holistic Network Design plan, which set
out the need for investment in twelve of Energy Networks’ onshore transmission projects considered essential for delivering the UK’s 2030 offshore
wind targets.
Over the course of 2022, the future of energy in the UK became an issue of critical importance. Post-pandemic demand increases, combined with
supply constraints linked first to the pandemic and then to the war in Ukraine, caused global wholesale gas prices to rocket and remain volatile
throughout the year. Energy Retail and Wholesale has operated in challenging conditions as a result of unprecedented volatility and increased costs in
wholesale energy markets. We recognise the negative impact that the cost of living crisis is having on our customers and we have played a leading role
in policy debates with government and regulatory stakeholders on the measures required to mitigate the worst impacts of high energy prices for
domestic and non-domestic consumers and to ensure the energy supplier market can fully recover its costs and operate on a more sustainable footing.
With continuing increases in energy prices presenting real challenges, protecting our customers through this period has been a key priority. Alongside
our own actions to help manage customer payments and offer support, we have welcomed the measures taken by the UK Government to support
customers, and we have worked hard to support the delivery of a succession of government support schemes, which have included the Energy Bill
Support Scheme (“EBSS”) and the Energy Price Guarantee (“EPG”) for domestic customers, and the Energy Bill Relief Scheme (“EBRS”) for non-domestic
customers. In November 2022, the UK Government extended the operation of the EPG from March 2023 to March 2024 and indicated its readiness to
consider longer-term changes to the energy retail market, including the provision of a social tariff to help the most vulnerable households. In January
2023, the UK Government announced that the EBRS will be replaced when it ends in March 2023 by a new Energy Bills Discount Scheme (“EBDS”) which
will run from April 2023 until March 2024, but with a lower scale of support than the current EBRS.
In line with the government initiatives, we have also been sharing information with our customers on the actions they can take to reduce their
consumption. We have welcomed the UK Government’s ongoing engagement with industry on energy efficiency measures, including the Energy
Company Obligation (“ECO”) schemes, and the provision of additional funding between 2025 and 2028 to deliver an ambition of reducing the UK’s final
energy consumption from buildings and industry by 15% by 2030 (against 2021 levels). We continue to engage with the UK Government on the
effective and timely delivery of energy efficiency measures.
In November 2022, the UK Government also announced the introduction of the Electricity Generators Levy (“EGL”) on a variety of forms of low-carbon
generation, expected to apply from 1January 2023. The EGL is expected to levy an additional 45% tax on receipts made above an average output price
of £75 per megawatt hour (“MWh”). The EGL is expected to endure until March 2028, with no levy due if the prices received by a generator were to fall
below the benchmark price. We continue to engage with policymakers on the detail of the approach. Refer to ‘Renewables – Outlook for 2023 and
beyond’ section of the Strategic Report for further details.
Delivering a better future, quicker for everyone
The UK’s climate change ambitions, the increasing importance of energy sovereignty, and the emergence of the cost of living crisis, all point to a need
for speed in delivering more green, more secure and more affordable energy. These three critical needs are not in conflict with each other and given our
unique position in the UK as the only integrated energy company investing in renewables, electricity grids and helping homes to decarbonise, the
Group’s resilient business model is an engine for delivering decarbonisation and growth across the communities we serve.
Scottish Power UK plc Annual Report and Accounts 2022
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Scottish Power UK plc Annual Report and Accounts 2022
We have decades of experience delivering the green and secure energy system the UK needs. From supporting vulnerable people to making the energy
transition to building the renewable generation that our economy needs; from modernising our electricity networks to connect more renewable energy
and enabling the EV revolution to pioneering the development of floating wind deep offshore generation; we have a clear vision for secure, green and
affordable energy across the UK.
Our record of achievement during 2022 provides us with our biggest ever investment pipeline of green energy assets to help deliver the UK Government’s
energy strategy and net zero for the UK. As a direct result, in July 2022, we announced our largest-ever recruitment drive, with a target of having at least
1,000 people to join us in new positions to design, build and operate this green energy infrastructure. These roles will be directly employed across all our
divisions and at all stages, from trainees to time-served trades and supporting roles. The UK supply chain will also see a further boost and potentially
thousands more indirect jobs created as the Group’s billions of pounds worth of projects advance at pace.
We believe in developing an energy model that prioritises the wellbeing of people and the preservation of the planet. Recognising the importance of
taking care of the environment and people’s health, we want to offer society our experience in addressing these urgent social needs through our work on
the decarbonisation and electrification of the economy as a whole, using renewable energy sources, efficient energy storage, smart grids and digitisation.
We share Iberdrola’s purpose and values, and this is the bridge that connects the communities we serve with our growing Group. We are dedicated to
the purpose of building together, each day, a healthier, more accessible energy model, based on electricity.
OUR VALUES
Our values rest on continuing to develop as a leading global and sustainable group in the 21st century. To meet our purpose, we are founded on the
following three corporate values that define the Group's identity and form the foundation of our strategy.
Sustainable Energy (“Sustainable”)
We are pioneers of renewable energy. We seek to inspire others by creating economic, social and environmental value wherever we are now, and looking
to the future. We put this value into action by continually putting safety first, respecting the environment, and acting ethically, rationally and responsibly
to meet our commitments.
Integrating Force (“Collaborative”)
We are an energetic and responsible force for change. Through working together, we build and grow talent to achieve our common goals and purpose.
We put this value into action by sharing knowledge and information; working together with our employees, suppliers and customers; and by breaking
the mould and encouraging diversity.
Driving Force (“Dynamic”)
We bring about efficient change, big and small, through constantly challenging ourselves and our processes. We innovate to deliver continuous
improvement. We put this value into action by asking how we can do things more simply or efficiently, coming up with ideas and leading innovation,
and anticipating our customers’ needs.
OUR STRATEGY
Our strategy is to create value from investment in networks, renewable energy generation and retail to help our customers realise a better future,
quicker, under the pillars of our strategic values.
Our key strategic goals include:
• investing in networks to make them smarter and more resilient, and creating a platform for the UK’s sustainable electric future;
• investing in renewable energy generation, principally onshore and offshore wind, solar and battery storage, to address the climate emergency and
reduce the cost of electricity generation;
• creating a fair, transparent, competitive and financially stable retail market where customers are protected from irresponsible practices and are in
control of their energy usage through digitisation and smart metering;
• supporting and guiding domestic and business customers through their journey to help them decarbonise and be more efficient in their energy
consumption;
• designing and delivering an energy system to facilitate and encourage the growth of EVs and clean heating solutions to improve air quality and
tackle climate change; and
• facilitating the decarbonisation of sectors of the economy that are challenging to electrify, such as heavy industry and transport, through the
development and application of green hydrogen solutions.
In November 2022, in support of this strategy, we set out plans to invest £6.7 billion in the UK between 2023 and 2025 in network infrastructure,
clean energy generation and storage and smart solutions opportunities. We will increase our capital spending in the UK, with £6.7 billion to be spent
predominantly on growth between 2023 and 2025, including £3.3 billion on electricity network investment and nearly £3 billion on renewable
generation projects.
OUR ROLE
In the wider legislative, regulatory and commercial context in which we operate, our commitment to playing a leading role in the UK’s contribution to
combating climate change has been reflected in a number of significant developments during 2022. Building on the publication of the UK Government’s
Energy Security Strategy in April 2022, we have contributed actively to the development of thinking in a range of significant areas of policy.
As the only energy company in the UK with a role across the entire energy value chain of generation and storage, transmission and distribution, and supply
to domestic and business customers, we are uniquely placed to make an active and distinctive contribution to these policy debates. In July 2022, we
published ‘The Need for Speed’ policy document, which set out ten recommendations for delivering green energy security, affordably and at pace.
Group Strategic Report for the year ended 31 December 2022
OUR PURPOSE, VALUES, STRATEGY AND ROLE continued
4
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
OUR PURPOSE, VALUES, STRATEGY AND ROLE continued
The recommendations identified practical steps to:
• make faster progress on energy efficiency to reduce demand and cut household bills;
• incentivise the move to low-carbon, electric homes;
• rebalance energy bills to spread costs more fairly;
• provide enduring support for the most vulnerable customers through a social tariff;
• speed up the deployment of renewables;
• legislate to embed net zero priorities across relevant authorities and statutory bodies;
• repower existing onshore wind at pace;
• ensure agile regulation to back ‘no regrets’ network investment;
• speed up planning for grid infrastructure; and
• prioritise the commercialisation of low-carbon hydrogen.
Across all areas of our business, we contend that the pace of change needs to become quicker and we need to ensure everyone benefits from the green
transition; a theme drawn out in the publication of our updated Just Transition Strategy in November 2022.
In September 2021, we announced a significant new partnership with the World Wide Fund for Nature (“WWF”), the world’s leading independent
conservation organisation, to help accelerate the UK’s transition to net zero. The unique link-up (the first time in more than a decade that WWF has worked
with a UK energy company) is pursuing a programme of policy advocacy to champion low-carbon energy solutions and to call for ambitious climate action.
In July 2022, we published ‘Better Homes, Cooler Planet’; a joint research report with the WWF on the environmental and economic benefits of installing
low-carbon technologies in UK homes.
Speeding up the journey to net zero is at the heart of everything we do, and each of our divisions has an active role to play in achieving this goal.
ENGAGING WITH STAKEHOLDERS
THE IMPORTANCE OF ENGAGING WITH OUR STAKEHOLDERS
As part of the Iberdrola Group, we are developing a responsible and sustainable energy model which focuses on the wellbeing of people, the protection
of the environment, and the economic and social progress in the communities in which we operate. We strongly believe that effective and meaningful
engagement with stakeholders, especially employees, is key to promoting the success and values of the Group.
Meaningful engagement with our stakeholder groups supports the ethos of section 172 of the Companies Act 2006 which states that directors should
have regard to stakeholder interests when discharging their duty to promote, in good faith, the success of the company for the benefit of its members
as a whole for further insight, (refer to the Section 172 statement on page 49). Details of how the Group and our individual businesses engage with our
stakeholders, and how these activities influence the Group’s operations, are set out below.
Our key stakeholders
We have five key stakeholder categories:
Behind these stakeholders are millions of people, and thousands
of institutions, organisations and groups. All of them, with their
decisions and opinions, influence the Group and, in turn, are affected
by our activities. In addition, these stakeholders interact with each
other, creating a universe of relationships that the Group needs to
manage in order to achieve a better understanding of our operating
environment and to deliver a more sustainable performance across
our activities.
Our shareholders are also important to us. All shareholder
management activities are carried out on our behalf by our ultimate
parent company, Iberdrola, which is listed on the Madrid Stock
exchange. Iberdrola is committed to dialogue, proximity and actions
in favour of shareholders. Iberdrola is one of the first companies in
the world to formalise a Shareholder Engagement Policy focusing
upon two-way interaction with the shareholders in order to forge a
sense of belonging and to encourage their engagement in the
corporate life of Iberdrola. Iberdrola’s Shareholder Engagement Policy
is published at is published at www. iberdrola.com under ‘Corporate
Governance’/ ‘Governance and Sustainability System’/ ‘Corporate
Governance’ / ‘Corporate Governance and Regulatory Compliance
Policies’ / ‘Shareholder Engagement Policy’.
Employees
Community
and
environment
Energy
customers
Key
stakeholders
Suppliers
and
contractors
Government
and
regulators
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Scottish Power UK plc Annual Report and Accounts 2022
EMPLOYEES
The Group employs approximately 5,750 employees, working across a range of roles within our Energy Networks, Renewables, and Energy Retail and
Wholesale divisions as well as our Corporate function. Our employees make a real difference in determining how successfully we operate. The creativity,
innovation and individuality of our employees enables us to build on our future capability to operate effectively in a competitive market and continue to
have aspirations which are challenging and rewarding. We respect and recognise the importance of individuality as part of our ongoing commitment to
promoting a culture where individuality is celebrated. We also understand that being a diverse organisation goes beyond having legally compliant policies
and practices; it includes a focus on creating an innovative, integrated organisation where people feel valued, inspiring them to perform at their best.
In July 2022, we launched a recruitment drive for 1,000 green jobs to be filled by the end of next year in order to develop, build, and operate our largest
investment of green energy technologies. These roles will be directly employed across all areas of our businesses and at all stages, from trainees to time
served trades and supporting roles.
Employment regulation
We have well-defined policies in place throughout our divisions to ensure compliance with applicable laws and related codes of practice. These policies
cover a wide range of employment issues such as disciplinary, grievance, harassment, discrimination, stress, anti-bribery, anti-corruption and
whistleblowing, and have been brought together in the Code of Ethics of Iberdrola and its group of companies (“the Code of Ethics”), which also outlines
expectations for employees’ conduct.
Training
We have a continuing commitment to training and personal development for our employees and provided 5,378 training events in 2022 (3,205 in 2021).
Throughout 2022, the focus has been on delivering mandatory health and safety training and enhancing capabilities and competence of new and existing
staff in our core business divisions.
During 2022, we have recruited over 280 apprentices, graduates and trainees who are undertaking structured training programmes leading towards the
achievement of nationally recognised trade apprenticeships, other accredited qualifications or specific training programmes.
Our focus for leadership in 2022 has been on our core value of collaboration. We have developed a cohort of 17 senior leaders in methods of inquiry to
explore and research how we better collaborate across the Group. In addition, we have developed a new Leadership Academy framework called ‘Always
Leading’ and have piloted first-line people-leader workshops on Introduction to Management across 112 of our new and existing people leaders. As part of
the Leadership Academy, they are also given access to LinkedIn Learning with a range of leadership learning collections to support their development. We
continue to offer team development support through our Team Effectiveness Toolkit and Team Performance sessions with external facilitators or coaches.
This has included providing everyone with a LinkedIn Learning license with curated learning collections on a range of leadership topics and our leadership
potential indicators. Coursera licenses and access to top university courses have also been made available for certain populations. In addition, two
mentoring programmes have been launched – Women in Leadership and Global High Potential mentoring as well as access to executive coaching for those
with specific development needs. Finally, we have run a series of facilitated sessions with our global high potential talent to support their development
needs and delivered two leadership masterclasses on personal branding and leadership transition for our talent population.
Employee feedback and consultation
Our employee engagement survey is called ‘the LOOP’. The LOOP provides an opportunity for our employees across the organisation to share their views
on their employee experience and is completed by all employees bi-annually. The last full survey was completed in May 2021 and our response rate was
76%. Overall, the positive insights from the LOOP feedback showed an increase in employee engagement and enablement across the Group. The
opportunities highlighted from the survey included ensuring a focus on cross-business collaboration, which aligns with our values as described in detail
on page 3.
As well as employee feedback through the LOOP, we consult regularly with employees and their representatives via a variety of channels, including virtual
business conferences, health and safety committees, employee relations and engagement forums, and employee-led networks.
Inclusion and diversity
We are committed to driving diversity in the energy industry, increasing our diverse and inclusive workforce whilst taking action to address the deepening
skills shortage in the sector.
We want to attract and inspire the best talent regardless of gender, age, sexual orientation, disability, ethnicity or any other factor. We value every
individual’s differences and the insights they bring to how we think, what we believe and who we are.
We recognise the importance of work-life balance, and many of our roles offer hybrid working, allowing employees to split their time between the office
and home. Additionally, as part of our recruitment process, we encourage discussions on flexible working.
We published our latest Gender Pay Report on 8 March 2023 in which we reiterated our commitment to pay for performance equally and fairly. This
continued our focus on breaking down barriers across the employee lifecycle, as over time this will improve our gender pay gap position whilst widening
the inclusion of other under-represented groups. For more information, the latest Gender Pay Report is published at www.scottishpower.com under
‘Careers’/ ‘Inclusion at ScottishPower’/‘Gender Pay Reporting’. Since October 2018, all recruiting managers must complete e-learning and training on
unconscious bias before their vacancies are authorised.
As part of our commitment to closing our gender pay gap, our Senior Leadership Team set two aspirational targets in 2018 to break down the barriers for
women:
• increase in the proportion of women in our senior management population to exceed 30% by 2022; and
• increase in the proportion of women in our middle management population to exceed 40% by 2022.
Group Strategic Report for the year ended 31 December 2022
ENGAGING WITH STAKEHOLDERS continued
“People, our most important asset”
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Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
ENGAGING WITH STAKEHOLDERS continued
EMPLOYEES continued
The 2022 Gender Pay Report published on 8 March 2023 highlighted that the proportion of females within our senior management population has
increased to 32% (2021 26%). The proportion of females within our middle management population has remained static at 31% (2021 31%). This is as
a result of continued growth in our Energy Networks and Renewables divisions and reflects the pipeline for external talent.
We have a number of programmes in place to address this and progress is monitored on a continuing basis:
• Inclusive recruitment principles such as balanced shortlisting and gender-balanced interviewing are now incorporated into all our external
recruitment campaigns. Recruitment consultants encourage all hiring managers to adopt these inclusive recruitment principles.
• All of our job advertisements are reviewed using gender de-coding (i.e. highlighting masculine and feminine language).
• We continue to share best practice through the Energy Leaders Coalition which comprises 16 of the leading chief executive officers (“CEOs”) from
the UK’s energy sector who have made a public declaration to improve gender diversity in their groups and in the sector as a whole.
• We are a corporate partner of the Women’s Engineering Society to help with the important work that they do in supporting women engineers and
encouraging girls to see engineering as a career option.
• We continue to provide Maternity/Parent Coaching to females within our talent population who are on the maternity journey, whether that be
preparing for, or on, leave, or returning to work. The coaching blends practical support and advice to both the participants and the line mangers as
well as focused career coaching to maximise the participant’s potential for future progression.
• Our ‘New Additions to Your Family’ guidelines launched in November 2021 provide sector-leading leave benefits for all ScottishPower employees
regardless of service. These include 26 weeks’ full pay for maternity and adoption leave and two weeks’ full pay for paternity leave. Returners from
maternity and adoption leave are also entitled to a phased return where they will receive 100% contractual pay for working 80% of their duties for
three months. These guidelines were designed in collaboration with the Group’s employee network who support parents and carers (“SPACE”).
• Additional guidance on Menopause and Menstrual Health and Domestic Abuse have been developed and communicated in collaboration with the
Group’s Connected Women’s employee network.
In addition, we are promoting gender equality through the Science, Technology, Engineering and Mathematics (“STEM”) engagement initiative.
Throughout 2022, we have delivered our STEM message to primary, secondary, college and university pupils and students via face-to-face events and
workshops. The Group works with a range of partners and events to communicate our early careers programmes to school children and their families.
The STEM Returners programme aims to help employees returning to work after a lengthy career break to grow and develop their career, offering the
time and support needed to refresh and redevelop their skills to help them in returning to employment on a more permanent basis. The 2021/22
cohort saw four out of the ten participants securing a permanent job with the Group as a direct result of taking part in the programme.
We continue to work with a number of recognised organisations as part of our commitment to diversity and inclusion. These include: the Business
Disability Forum, The Armed Forces Covenant, Carers UK, ENABLE Scotland and POWERful Women. We are recognised at the highest level of
accreditation of the Armed Forces Covenant (Gold Status) for initiatives we have in place as a 'forces-friendly' employer and in 2022 we were awarded
the Inclusive Workplace Award by the Scottish Union of Supported Employment for the second year in succession.
We expect all our employees to be treated with respect and we have supporting policy guidance to help ensure equality of employment opportunity for
people with disabilities. We have maintained our Disability Confident standard and our accredited level at ‘established’ with Carers Scotland.
In 2022, the fifth cohort of the inspirational Breaking Barriers programme continued online. The programme aims to support aspirations for young
people with learning disabilities and provide equal opportunities to access university courses. Between April and June 2022, ten learners aged between
18 and 24 studied for a Certificate in Applied Business Skills at the University of Strathclyde Business School. As part of this experience, the learners
gained valuable skills and work experience as part of a placement with the group.
The Group continues to support the growth of our existing employee-led networks:
• Future Connections – to bring people together from across the Group with an appetite to communicate and learn about activities in other
business areas;
• Connected Women – a confident and vibrant network for ScottishPower women;
• SPACE – to give employees access to support and guidance on all aspects of being a parent or carer;
• In-Fuse – to represent LGBT+ colleagues and allies alike;
• VIBE – focussed on ethnicity; and
• iCan – a platform to encourage, create and promote authentic leadership for climate action in both the professional and personal lives of all
ScottishPower employees.
In December 2022, we launched our first employee network focused on disability. This network was created by a group of employees in ScottishPower
to provide a platform for all staff who identify as disabled, neurodivergent or having a long-term health condition, visible or invisible.
All of our networks continue to engage with their members through online awareness sessions, and, celebrating key dates on the inclusion calendar as
well as sharing knowledge to promote personal development. The networks also play a key role in the attraction and retention of new employees from
under-represented groups to maximise engagement and performance. We continue to promote our commitment to inclusive employment through
our external careers website, ‘Inclusion at ScottishPower’. This is a dedicated space on our website which promotes important initiatives that go on
internally, such as our employee networks, involvement with community programmes, partnerships with external organisations and our Gender Pay
Report.
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Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
ENGAGING WITH STAKEHOLDERS continued
EMPLOYEES continued
Rewards and benefits
As our business continues to change and evolve, it is important that the benefits that we provide to our employees also develop to meet these challenges.
We recognise that the benefit needs of employees are unique to the individual and we want them to be able to tailor benefits to their own circumstances.
We provide a benefits programme, ‘Your ScottishPower Benefits’, which offers employees the flexibility to choose from a range of benefits, such as
participation in the ScottishPower Share Incentive Plan, purchasing a bike through the Cycle to Work scheme, or purchasing additional holidays. The
ScottishPower Electric Vehicle Salary Sacrifice Scheme was introduced as an employee benefit in 2022. This scheme allows employees to initially lease,
and then purchase, an EV in a cost-effective manner. Employees can also participate in one of the Group's pension schemes. The Group has a defined
contribution plan and two defined benefit schemes which allow employees to save for their retirement. All employees who have joined the organisation
on or after 1 April 2006 have been offered membership of the defined contribution plan, the Iberdrola Group (UK) Stakeholder Pension Plan.
Health and safety
Employee health and wellbeing, the prevention of harm to employees, contractors and members of the public, and the protection of business assets and
operational capability, are our top priorities. During 2022, we have continued to strive for improved performance. Both internal, and external health and
safety assessments have returned positive findings.
We have an established Health and Safety Management System (“HSMS”) to ensure that the Group and its employees meet all applicable internal, external,
legal and regulatory requirements and standards, and aligns with the Iberdrola global health and safety approach. This HSMS provides an overview of how
health and safety risks are managed across the organisation. The HSMS includes items such as:
• The Health and Safety Policy, which details what we want to achieve with respect to health and safety, who will implement the requirements
(detailing the roles and responsibilities) and how the policy will be achieved.
• How the health and safety programmes (e.g. the annual Preventive Activity Plan, Operational Plans and Communications Plans) have all been
implemented. All of these are aimed at maintaining and improving health and safety performance.
• How compliance is delivered through a governance structure, audits and inspections and external and internal certification.
• An annual training plan is established to ensure employees are competent based on appropriate education, training or experience.
• A risk assessment procedure details how we will manage and control hazards and risks.
• An established annual Health and Safety communication plan.
• At a Group level, a Health and Safety Management Review is completed every six months and a specific report format used to record and
communicate the findings.
To work in conjunction with the Group HSMS, each of our divisions has its own specific HSMS. Each division’s HSMS expands upon the Group HSMS; they
are not intended to duplicate or contradict, but to focus on division-specific scope of works and requirements.
Health and safety performance
We successfully maintained our ISO 45001 certification following a surveillance audit in 2022. For global consistency purposes, Iberdrola and therefore
ScottishPower, moved from using lost time accidents as one of the primary measurements for health and safety performance to the Total Recordable
Injury Rate (“TRIR”) at the start of 2022. TRIR is an expanded measure and captures lost time accidents, medical treatment and restricted work incidents.
The annual ScottishPower employee accident and incident statistics remained low with eight TRIR incidents in 2022, which equates to a TRIR of 0.17. For
contactors, there were 26 TRIR incidents which equates to a TRIR of 0.49. Three of the TRIR employee incidents were reported to the Health and Safety
Executive (“HSE”) under The Reporting of Injuries, Diseases and Dangerous Occurrences Regulations. There was also one Occupational Health case
reported to the HSE under the same Regulations.
The table below provides the occurrence of TRIR incidents in each business division (including the Corporate functions):
TRIR incidents* 2022 2021** 2022 2021** 2022 2021**
Energy Networks 7 10 14 11 21 21
Renewables 1 – 7 9 8 9
Energy Retail and Wholesale – – 5 2 5 2
Corporate – – – – – –
8
10
26
22
34
32
* TRIR incidents include lost time, medical treatment and restricted work incidents.
** 2021 values have been restated to show TRIR incidents.
As shown above, there were eight employee TRIR incidents during 2022 compared to ten in 2021 and 26 contractor TRIR incidents compared with
22 in 2021. Based on these figures along with the results from audits and inspections, health and safety standards and performance within the Group
remain high.
Employees Contractors Total
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Group Strategic Report for the year ended 31 December 2022
Public safety
In addition to the physical measures we take to protect the public from electricity, for example secure compounds, safety distances and signage, we also
strive to raise electrical safety awareness with the public and the emergency services via a number of campaigns and initiatives.
Various methods of communication have been used to deliver key messages including attending several agricultural and ‘Crucial Crew’ events. Social
media channels were utilised to reach different audience groups such as the agricultural industry, construction workers and general members of the
public as well as promoting safety for children as part of our ongoing safety campaigns.
We continue to support three public access safety centres where our key health and safety messages are presented to children through substation and
overhead powerline interactive props, presentations and verbal safety advice. Our PowerWise interactive website has continually been promoted to schools
and parents as a curriculum-linked teaching resource to inform young people about the dangers of electricity, which provides free, interactive resources.
We have worked with the emergency services providing them with electrical safety awareness presentations as well as offering support to them when any
incidents have occurred. Various national communication campaigns have been delivered throughout 2022 and significant work was done in conjunction
with the Energy Networks Association for the production and promotion of consistent energy and utility health and safety messages.
Employee health and wellbeing
We promote and support the physical and mental health and wellbeing of our employees through a programme of health promotion and information run
by our occupational health department. In addition to the typical activities carried out by this department, and as part of our focus on health and wellbeing,
conscious efforts have been made to reduce the stigma and discrimination surrounding mental health and increase the support available to employees.
Our Occupational Health department has initiated a mental health first aiders’ training programme and support forums. A Mental Health Steering Group
was introduced in early 2020 with the purpose of creating a working environment where we all feel safe and able to talk openly about mental health and
providing the support that will help keep us well. There are representatives from each of the divisions and the corporate functions on the steering group.
Conversations continue to become more open around mental health and typical campaigns have become standard practice, including Mental Health
Awareness Week, World Suicide Prevention Day and World Mental Health Day. In addition, the Occupational Health department has developed a dedicated
mental health training programme for line managers in collaboration with the Scottish Association for Mental Health and Mind. This has stemmed from
the SeeMe survey undertaken in 2020, which was shared with the Senior Management Group.
Providing ongoing health and wellbeing support has been vital during 2022. The Occupational Health team has employed a dedicated Health and
Wellbeing Consultant to work alongside them, whose role is to support all employees and broaden the reach for all staff to be able to access a wider
wellbeing programme. In addition, where necessary, ongoing assistance has been given to support those who have suffered from COVID-19.
Working within the Occupational Health department are the occupational hygienists whose role is to help identify potential chronic health risks (from
exposure to industrial processes) and to provide mitigating solutions to reduce the risk of harm. This work provides the basis for all statutory health
surveillance requirements, which the occupational hygienists and the wider Occupational Health department are responsible for.
“Putting people first to achieve a better future, quicker”
ENERGY CUSTOMERS
We provide energy and related services to millions of domestic and business customers. Our success depends on our ability to understand and meet the
needs of our customers, and engagement is key to our success in this rapidly changing environment. We seek feedback in several ways including forums,
market research and product testing, as well as via complaints channels and surveys.
Energy Networks
We recognise the importance of the current cost of living crisis and the impact it is having on us all, particularly those who are most vulnerable. We have
an important role to play in supporting our communities through the energy transition and moreover, ensuring we go above and beyond for our
communities and that no one is left behind. We are aware that the energy crisis has been hitting our customers hard, especially those who are already in
fuel poverty. That is why we work with local partners to provide a range of financial and social support services beyond power cuts.
Understanding and responding to our customers' needs is not only deep-rooted in our culture but is also essential to meeting the goals we have
developed with stakeholders to guide our future plans. Our commitment to our customers is reflected in our customer service scores which continue to
trend above Ofgem's target of 8.2. In the regulatory year 2021/22, SP Distribution plc (“SPD”) and SP Manweb plc (“SPM”), achieved a customer satisfaction
score of 9.17 and 9.21 out of 10 respectively. For our transmission business, as part of our RIIO-T2 transmission price control business plan, we are
committed to improving the quality of service as measured through the Quality of Connections survey, more commonly known as the ‘Moments that
Matter'. For the first year of RIIO-T2 (regulatory year 2021/22) our customers rated us at 8.3, against a benchmark of 7.7. Whilst our score was the highest
amongst the UK's transmission operators, we continue to focus on how we serve our customers.
Delivering for our customers
Power cut support service
Where possible, we take all steps necessary to prevent customer detriment tied to a power cut. When a power cut does occur, we work tirelessly to get
our customers back on supply and, while we do this, we proactively offer a range of services designed to meet different types of customers’ needs.
These include winter welfare packs, hot food and generator provision. Customers who feel they may need extra support during a power cut can join our
Priority Services Register, enabling quick and easy access to twelve support services. This includes dedicated support, provision of hotels and company
to vulnerable customers after twelve hours during exceptional events. In 2021/22 we delivered 111,147 power cut support services.
Group Strategic Report for the year ended 31 December 2022
ENGAGING WITH STAKEHOLDERS continued
Customer needs tracking tool
We introduced a tool in 2020 which tracks our vulnerable customers’ personal and diverse needs, allowing us to understand them and ensure that our
support services and processes satisfy them. Energy Networks’ training programme, ‘Making a Difference’, focuses on vulnerability and the challenges
these customers face day-to-day. It explores how an outage, fault or work delivered by Energy Networks could impact customers and demonstrates
how Energy Networks’ processes, conversations, and support options help our customers and communities when needed.
Engaging with our stakeholders
We aim to ensure that our stakeholders’ views are considered in everything that we do. We align our stakeholder engagement strategy with the
Stakeholder Engagement Standard AA1000 set by AccountAbility. We achieved 85% in the 2022 AccountAbility audit; achieving the highest
categorisation possible (‘Advanced’). This represents an overall improvement of 19% since our first audit in 2018. Energy Networks continues to work
closely to identify the needs of vulnerable customers and stakeholders as measured by Ofgem stakeholder engagement incentive. The scores for the
stakeholder engagement incentive for the regulatory year 2021/22 was 5.29 out of 10 for both SPD and SPM. This compares to 7.08 in 2020/21
reflecting a challenging year for the utilities industry due to increased prices.
Maintaining a reliable supply of electricity
Society rightly expects to consistently receive a reliable supply of electricity at the flick of a switch,which is why we continue to strive to exceed our
RIIO-ED1 regulatory price control commitments and will continue to do so as we enter into the RIIO-ED2 period. This year has continued to see
unprecedented challenges for the energy sector. We have continued to serve our distribution customers with 99.99% reliability levels for 30p per day,
protecting the most vulnerable and ensuring supply to critical sites such as hospitals, nursing homes, water treatment works and food supply
businesses.
Energy Retail and Wholesale
Customer service
Delivering excellent customer service to our customers when they need to contact us continues to be our key priority. Across Energy Retail, we work
hard to ensure the customer is at the centre of everything we do and is everyone's focus. We continually assess our processes and customer journeys,
and identify and implement improvements to ensure we meet our expectations and those of our customers. We are relentless in our pursuit to improve
our customer experience.
We continue to focus on delivering customer service through a number of digital channels as well as retaining our traditional telephone channels.
Digital tools are the channel of choice amongst our customer base with mobile apps now being our most frequently utilised self-service tool, alongside
digital online web chats. In 2022 we were recognised for our digital commitment by providing customers with a ‘best in class’ user experience across
our iOS and Android apps through the award of the eCommerce ‘App of the Year’. Web chats have seen a rapid growth in 2022 and greater use of
automation. Continued investment supporting in-house digital development capabilities enabled the rapid design and creation of multiple new
customer centric processes and refinements to meet the continued demands of customers and help manage operational requirements. Offering
increased flexibility around payments and digital communication methods, we can respond rapidly to the evolving situation and meet the needs of
our customers. In addition to the growth and enhancements to key self-service account tools, there has been a continued focus on leveraging the
capabilities of smart meters to deliver automated services and insights to help customers gain a better understanding of their energy usage, and
digitise processes such as smart prepayment top-ups and more granular consumption insights.
Support we are offering
A key issue in 2022 was the impact of the cost of living crisis including the increase in energy prices in the UK. In response, the UK Government launched
three support schemes for both domestic and business customers; further details of these schemes are included in the ‘Energy Retail and Wholesale
operating review’ section of the Strategic Report. The importance of these payments to domestic and business customers and a general concern around
affordability has resulted in a significant increase in customers contacting us across all contact channels and in particular those customers that are
financially and non-financially vulnerable.
Prior to the increase in energy costs, we already had a range of support measures in place for our customers in vulnerable circumstances, whether
financial or non-financial (and recognising that there can quite often be an overlap between the two). These services include:
• a range of contact options for customers to use to get in touch with us;
• automatic routing of customer calls to specialist support teams to manage contacts from customers who we identify may need additional support
to manage their account, based on account information we hold (including those with prepayment meters);
• support options offered under our Priority Services Register for those non-financially vulnerable customers who may find it more challenging to
manage their energy account;
• alternative payment options and tariffs for different customer circumstances;
• flexible repayment schemes for those who have built up debt;
• advice on how to reduce energy consumption through simple actions by the customer or via the ECO scheme;
• signposting to third parties who can offer additional guidance and support;
• signposting to our own Hardship Fund and our Prepayment Voucher Scheme; and
• a dedicated team of National Community Liaison Officers whose sole purpose is to provide in home support.
Scottish Power UK plc Annual Report and Accounts 2022
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Group Strategic Report for the year ended 31 December 2022
We have further reviewed our approaches to ensure we are doing as much as we can to support customers struggling to pay for their energy, and in
2022 implemented the following:
• Setting up, and continuing to increase, resource within a dedicated Affordability Team, consisting of specially trained customer service agents, to
provide customers either at risk of, or already experiencing, payment difficulty with tailored information, tools and support at a time when they need
it most.
• Strengthening our links with key third party organisations to help inform and adapt our approach moving forward. This includes a new partnership
with StepChange, the UK’s leading provider of free, independent debt advice. This partnership supports us in our signposting for customers to
receive additional support, and we have also utilised StepChange in our training of agents within our new Affordability Team.
Our focus is on prompting customers to engage with us as early as possible so that we can provide the support they need, whether that be within the
actions we can take ourselves, or in ensuring those customers who need broader support than we can offer, have direct access to third parties who can
provide it.
We are also raising awareness of the measures customers can take to reduce the impact of increasing energy costs. This includes arranging for a smart
meter to be installed, which is the best way to track energy consumption by showing a customer the cost of the energy they are using and ensures they
only pay for the energy they use by providing us with regular, automatic meter readings.
We further support vulnerable customers with their energy bills through the Warm Home Discount Scheme (“WHD”). Now in its twelfth year, the WHD
is the UK Government’s main policy for tackling fuel poverty. The scheme is delivered by energy suppliers, principally to qualifying customers, by
providing rebates on electricity accounts to help when bills may be higher over the winter period. During scheme year eleven, which operated from
1 April 2021 to 31 March 2022, we spent £28.2 million providing assistance to 201,782 customers by applying a rebate of £140 to their electricity account.
In addition, £3.6 million of funding was awarded to eight third-party organisations to deliver industry initiative projects to provide a range of assistance
to domestic customers. Our partners delivered energy efficiency advice, energy efficient white goods, and measures to improve the energy efficiency
of the property where they lived. Other projects focused on further financial support providing fuel debt assistance and benefit entitlement checks.
Energy efficiency
The delivery of energy efficiency measures continues to be an important responsibility of our business, and 2022 was the ninth year of delivery of the
UK Government’s ECO scheme. The ECO scheme is fundamental to improving the fabric of British homes in our pursuit of achieving net zero and
focuses on reducing heating costs for the most vulnerable customers and improving the energy efficiency of properties. We successfully delivered two
of our sub-obligations for the ECO3 programme in early Q4 2021 and the delivery of our overall obligation was completed in December 2021, three
months ahead of the legislative deadline. We continued with our ECO3 programme in 2022 with surplus delivery being carried over to ECO4. This
ensured that the households could receive the benefit of the measures as early as practicable and maintained activity for our supply chain partners.
In July 2022 the ECO4 legislation came into effect and the obligation will run until March 2026. The focus of ECO4 is the most vulnerable households in
the least efficient homes (Energy Performance Certificates (“EPC”) Bands E, F and G) and targets a whole house improvement project based on a fabric-
first approach. This will see a drop in the number of properties treated, however, the majority of those treated will be improved by a minimum of two
EPC bands with multiple measures delivered to each home. Our supply chain commenced delivery of ECO4 measures in August 2022 but delivery is
cautious while the supply chain and obligated suppliers adjust to the new requirements of the obligation.
In December 2022, the UK Government launched and closed a consultation on a new government-funded programme, ECO+. This new £1 billion three
year programme will look to deliver loft and cavity wall insulation to hundreds of thousands of the least energy efficient homes in the lower Council
Tax bands, as well as targeting the most vulnerable homes across the country. Ofgem have not yet confirmed their timescales for consultation or
publication of scheme guidance, however we expect the scheme to be launched in the first half of 2023. We will look to commence delivery of this
programme as early as practicable to deliver support to homes as soon as possible.
“Being collaborative”
GOVERNMENT AND REGULATORS
Governments and regulators play a central role in shaping the energy sector. We engage with them directly and through trade associations, responding
to issues of concern and providing expertise to support policy development. Through this engagement, we aim to contribute to the delivery of a UK
energy system that functions in the interests of customers now, and in the future, including achievement of the UK and Scottish Governments’ net
zero decarbonisation targets.
Following our role last year as a principal sponsor supporting the UK Government in delivering the United Nations (“UN”) Climate Change Conference
of Parties (“COP26”) in Glasgow, we have continued to highlight priorities for decarbonising the energy sector and achieving a just transition. (Refer to
the ‘Our role’ section of the Strategic Report for further details). We have also continued our engagement with the UK Government, Ofgem and other
stakeholders on the RIIO-ED2 price control, highlighting the need for appropriate levels of ambition towards achieving net zero and appropriate
incentive mechanisms for network investment. On 30 November 2022, Ofgem published its Final Determination on our business plan for the RIIO-ED2
price control, approving £3 billion worth of spending to help us ready the UK for an electric future. (Refer to ‘Our purpose’, ‘Energy Networks operating
review’ and ‘Energy Networks outlook for 2023 and beyond’ sections of the Strategic Report for further details.)
We have also worked closely with the UK Government and Ofgem to respond to the unprecedented increases in wholesale energy costs following the
war in Ukraine, making the case for additional government support for domestic energy bills over winter 2022-23, notably the EBSS and EPG for domestic
customers, and the EBRS for non-domestic customers. Simultaneously, we encouraged longer-term reforms (including changes made by Ofgem to the
retail price cap) to ensure the sustainability of the supply sector. (Refer to ‘Energy Retail operating review’ and ‘Energy Retail outlook for 2023 and beyond’
sections of the Strategic Report for further details.) We also engaged with the UK Government on the EGL expected to apply from 1January 2023 (refer to
‘Renewables operating review’ section of the Strategic Report for further information) and we continued to work with the UK Government on its policies
for future support for renewables and new technologies such as green hydrogen, and wider reforms to wholesale markets.
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Group Strategic Report for the year ended 31 December 2022
“Being responsible”
SUPPLIERS AND CONTRACTORS
As part of our mission for a better future, quicker, we are always looking for new suppliers and contractors, and for ways to improve our working
relationships with our existing suppliers and contractors. We have a broad and diverse supply chain with around 3,000 suppliers, and during 2022, we
awarded contracts with a cumulative value of around £2 billion. Our suppliers have a key role to play in the delivery of our projects and services that we
are undertaking to provide a low-carbon future for the UK. We aim to develop and maintain strong relationships across our supply base with a focus on
health and safety, quality, cost and sustainability. We expect our suppliers to operate to a high standard including working in an ethical and sustainable
manner, and we have a range of policies that all suppliers must adhere to, including the ScottishPower Code of Ethics.
In 2022, we continued to increase our focus on the Environmental, Social and Governance (“ESG”) credentials of our main suppliers using our supplier risk
management system, Go Supply, which was introduced in 2021. This system has provided significant additional insight into ESG factors of our supply chain.
We have used this information to monitor and report to the board of directors of SPL (“SPL Board”) on the ESG credentials of our supply base, and to work
closely with those suppliers that we have identified as having weaker ESG traits to support their development through improvement plans and guidance.
During 2022, we were able to increase the number of our main suppliers that have a strong ESG scoring by 35% and we are pleased that 88% of our main
suppliers are considered sustainable.
More broadly, engaging proactively with our supply chain is key in ensuring positive outcomes for both us and our suppliers, and we seek to engage
specifically with suppliers through a variety of methods. For example, our Compliance Division and Procurement team worked together to contact a small
sample population of suppliers who showed low ESG scores in relation to their compliance systems, for a variety of reasons. The initiative was designed to
see if we could support those suppliers in improving those scores. We were pleased with the overall positive response. We continue to participate in business
update sessions focussed on supply chain and virtual trade events. We will be planning our Supplier Awards for 2023, which recognise excellence in the
supply chain along with giving a wide range of suppliers the opportunity to interact with both the Procurement team and other ScottishPower employees.
Engagement with our supply chain is always a critical activity for us but continues to become even more important as we adapt to the geopolitical and
macroeconomic challenges (refer to the ‘Group principal risks and uncertainties’ section for further details), in addition to the post-pandemic recovery and
Brexit transition, which have also impacted our supply chain. We are experiencing cost pressures due to high global commodity prices along with increasing
freight and labour costs (refer to the ‘Group principal risks and uncertainties’ section for further details). We are facing longer lead times for some equipment
and several of our suppliers have also been impacted by labour shortages. We have looked to support our supply chain during these challenging times by
working collaboratively on forecasting our requirements and we have also established customs brokerage services.
COMMUNITY AND ENVIRONMENT
Refer to ‘Sustainability’ section of the Strategic Report for further details.
INNOVATION
It is crucial that we continue to innovate and drive forward towards our decarbonised smart energy future. By championing innovative technologies, bringing
down the costs of decarbonisation and ensuring that no communities are left behind on the road to net zero, we continue to lead by example in making sure
clean, affordable energy is available to all.
The second year of the five-year collaboration agreement with The Halo Kilmarnock Limited (“the Halo Project”) has seen further progress in 2022. A first-
of-a-kind Start-Up Business Challenge will be hosted in 2023 at the Halo Innovation Centre, allowing new and emerging businesses to showcase their
talent and technology to the country, ensuring Scotland remains at the forefront of the low-carbon economy. Planning consent has been awarded for
138 properties, which will enjoy the benefit of low-carbon heating provided by heat pumps, optimised by smart controls. Corporate innovation
collaborated with the Halo Project team to secure funding from the Scottish Government’s Low Carbon Infrastructure Transition Fund to support delivery
of the heating system for the properties.
We continue to work with the University of Strathclyde and Scottish and Southern Energy plc through the Technology and Innovation Centre’s ‘Scottish Low
Carbon Power and Energy Partnership’. In the nine years since its inception, the programme has given us the opportunity to engage directly with academic
experts and industry counterparts, to conduct valuable research and development in areas including the operation and maintenance of wind turbines, digital
electricity networks and enhanced data analytics for optimised energy trading. New areas of research in 2022 have included locational marginal pricing,
which, if implemented industry-wide, could potentially save consumers £30 billion, and cable route optimisation for offshore wind projects, which can
deliver significant efficiencies and savings in the delivery of our ambitious offshore wind portfolio.
Further information in relation to engagement with government and regulators is set out in the ScottishPower Divisions sections of the Strategic Report.
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Group Strategic Report for the year ended 31 December 2022
Energy Networks
The Strategic Innovation Fund was launched in 2021 by Ofgem and UK Research and Innovation to find and fund ambitious, innovative projects with the
potential to accelerate the transition to net zero across the electricity and gas sectors. Energy Networks is working with numerous third parties to realise
projects that help tackle some of the UK’s biggest and most complex challenges in the push towards the UK achieving its net zero emissions targets.
These are categorised in the following areas:
• Whole System: Fast Flex and Asset Reuse and Recovery Collaboration
• Data and Digitalisation: Digi-GIFT, Predict4Resilience and EnTWINe
• Heat: Flexible Heat and Heat Balance
• Net Zero Transport: A Holistic Hydrogen Approach to Heavy Duty Transport and Resilient and Flexible Railway Multi-Energy Hub Networks for
Integrated Green Mobility
This exciting and ambitious portfolio of innovation projects will help Energy Networks deliver a resilient, flexible and agile electricity network that
facilitates the transition to low-carbon technology for the country. You can read more about these projects by visiting www.spenergynetworks.co.uk/
‘Investment & Innovation’/ ‘Innovation’/ ’Our Innovation Projects’/ ’Ofgem & UKRI Strategic Innovation Competition Fund’.
Renewables
Whitelee battery storage
Renewables aims to install over 0.9 GW of energy storage technology by 2030. As we install more renewable generation on the network, we need to ensure that
we can keep the electricity grid stable and secure during periods where the energy produced by renewable sources does not match the demand. Battery energy
storage systems (“BESS”) allow renewable electricity to be stored and delivered to the network in response to system needs. This will build on our previous
grid stability innovation work with our world first black start demonstration at Dersalloch Windfarm where we are using cutting edge grid forming technology.
Black start is the name given to the procedure used to restore power in the event of a total or partial shutdown of the electricity transmission system.
The Whitelee BESS became operational in 2022 and is co-located on our Whitelee Windfarm. This ensures that more electricity generated by the wind farm is
used and provides stability and security to the local electricity network without installing a lot of new infrastructure. We also have an operational BESS on our
Barnesmore Windfarm and further battery storage is planned to be installed at strategic locations across the UK.
Pile gripper trial at East Anglia One offshore wind farm (“EA1”)
This project is looking for efficiencies in the installation process of offshore wind farms. Jackets are a type of foundation used to secure offshore wind
turbines to the seabed. Pile grouting is the process of making a structural connection between a jacket and the piles that have been driven or drilled into the
seabed. During the grout curing process the movement of the jacket needs to be minimised and this is typically achieved with ‘pile grippers’. Most pile gripper
systems are based on legacy oil and gas technology and do not provide a cost-effective solution for the offshore wind market.
A test project was developed by the Renewables offshore team to verify the performance of a foundation stability tool using a wind turbine on EA1. This has
the potential to reduce installation time and reduce fabrication design and manufacturing costs. Following the initial trial of this system, testing will continue
at further sites to allow this solution to become fully commercially viable.
Energy Retail and Wholesale
Energy Retail continue to address the challenges of finding a sustainable and affordable solution for domestic heat. Having already launched a nationwide
installation service for air source heat pumps, solar panels, batteries and EV charging.
Energy Retail has been developing a concept for an industry-leading home energy management system to solve the problem of adoption of new smart home
technologies, caused by their lack of control, insight and inter-operability. This solution will create a modular hub including a customer access device within
the home which will provide real time home consumption data and optimise performance of smart devices. The trial of this solution will be undertaken in
conjunction with external software and hardware providers. The outcome will provide customers with a product that helps them reduce their energy
consumption as well as additional income opportunities through system balancing.
Energy Retail is exploring the potential of a brand-new customer-facing app to help customers reduce their consumption and make positive impacts on their
carbon footprint, whilst also saving money.
ANTI-BRIBERY AND ANTI-CORRUPTION
Bribery is a widespread issue with significant negative impact. We aspire to a strong best practice anti-bribery and corruption framework that allows us to do
business with confidence and minimises the risk of bribery or corruption in our operations.
Our anti-bribery and corruption framework is based on a solid governance structure that creates a senior-level focus on managing compliance risks. The SPL
Board has ultimate responsibility in this area and has designated the independent SPL Audit and Compliance Committee (“SP ACC”) as having primary
responsibility for overseeing compliance activity and reporting to the SPL Board on its effectiveness. Fully independent Compliance and Internal Audit
Divisions are in place, reporting to the SP ACC . The Compliance Division’s remit is established through a set of internal regulations, which place duties on it to
act independently and to report material issues to the SP ACC, along with the Iberdrola Group Compliance Unit.
Ethics is at the heart of our business model and is embedded in our corporate governance structure and in our policies and procedures for managing our
suppliers. The SPL Board has fully adopted the Code of Ethics, which establishes the expected behaviours for ScottishPower employees, suppliers and
representatives, and sets a zero-tolerance approach to non-compliance. The SPL Board has also approved a ScottishPower-specific Code of Conduct to
support and supplement the Code of Ethics. This Code of Conduct summarises the expectations on our employees in terms of behaviours, how they must
conduct themselves, and encourages and supports ethical decision-making.
We maintain a strong Anti-Bribery and Corruption Policy. This policy framework is supported by the Compliance and Ethics Manual which, together, ensure
that employees understand their obligations, have the appropriate means to comply with the policy and create a clear route for action in case of a breach.
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Group Strategic Report for the year ended 31 December 2022
The Compliance Division manages an annual risk assessment process which includes an assessment of fraud, bribery and corruption risks across the Group
and identifies any required actions or mitigation to address those risks. Compliance measures are in place to support employees in their roles, based on risk.
This includes training and awareness activities, which are important to support ongoing employee awareness of their obligations. All employees are asked to
undertake our overarching Code of Ethics training on a regular basis, which includes education on anti-bribery and corruption, and targeted coaching is
provided for those functions and roles which are identified as needing greater focus or guidance.
Anti-bribery and corruption controls are built in at all stages across the supplier management journey, from engagement and selection to contract award, and
ongoing monitoring and improvement. Our suppliers are subject to ongoing compliance risk screening. We utilise a Dow Jones risk screening tool to assess
compliance risks at key points across the supplier life-cycle, starting from the point of initial registration in the system, and daily for the existing supplier
population. New and identified risks are assessed and appropriate action taken to mitigate the risk for that supplier. Information on supplier compliance risk is
held directly in the purchasing and payment systems, allowing appropriate decision-making at each critical process step in the supplier relationship. This
includes an active role for the Compliance Division in reviewing and approving payments to third parties for compliance risks.
We maintain a ‘speaking out’ service, with several routes for employees, suppliers, stakeholders, or the public to raise concerns confidentially or anonymously.
We have a clear policy of non-retaliation for any person who makes a report through the speaking out service in good faith. Our compliance programme
retained Compliance Leadership Verification status in 2022, as assessed by independent firm Ethisphere. We have also obtained ISO37001 accreditation for
our anti-bribery and corruption programme.
HUMAN RIGHTS
Respect for human rights is an intrinsic element of our Governance and Sustainability System and forms part of our vision and values. We maintain a clear
hierarchy of policies that are designed to ensure that ethical, sustainable values and fair labour practices are at the heart of our business operations, which
includes the Code of Ethics, the Iberdrola Policy in Respect of Human Rights, and the Purchasing Policy.
The term ‘modern slavery’ covers both slavery and human trafficking. We are committed to human and labour rights and to eliminating modern slavery that
could in any way be connected to our business. In accordance with the Modern Slavery Act 2015, we have produced our own Modern Slavery Statement,
which is subject to annual approval by the SPL Board. This statement is published at www.scottishpower.com / ‘Sustainability’/ ‘Sustainable business’/
‘ScottishPower’s Modern Slavery Statement’.
In 2022, we renewed our membership of the Slave Free Alliance, a not-for profit organisation working in collaboration with businesses to enhance and
support their wider framework around ethical trade, sustainability, compliance, corporate social responsibility, and human rights. This membership provides
a valuable opportunity to educate and inform ourselves on how to address potential issues of modern slavery in our supply chain. Through this membership,
we have also been able to be involved in the Utilities Working Group, which is a collaborative forum between utilities and the Slave Free Alliance, to find a
common solution to tackling modern slavery within utility businesses.
For all individuals recruited by us, we check their eligibility to work in the UK (including passport verification) and conduct pre-employment background
checks, which can help to identify concerns or potential forced labour issues.
All third-party suppliers are subject to screening for any potential human rights or modern slavery issues, both at the point of registration with us and during
their contract. Specialist third-party due diligence will be used in some higher risk contracts when needed. Our suppliers are required to agree to terms
requiring them to operate ethically in relation to the recruitment, management and compensation of employees, in compliance with the Code of Ethics, as
well as relevant modern slavery legislation. Suppliers are required to ensure that any sub-contractors are also obliged to meet these obligations.
Our confidential ‘speaking out’ service includes an initial control, which requires every report to be assessed for potential human rights impacts before it can
be recorded. From 2022, certain categories of claims are automatically considered to have a potential human rights issue and are being recorded as such. We
also monitor suppliers for potential human rights issues as part of our third-party screening. In 2022, we recorded nine claims as having a potential human
rights issue based on the root cause. However, we did not identify any claims or cases relating to material or significant human rights impacts that triggered
precautionary measures.
14
Scottish Power UK plc Annual Report and Accounts 2022
ENGAGING WITH STAKEHOLDERS continued
Group Strategic Report for the year ended 31 December 2022
HOW SCOTTISH POWER UK PLC PERFORMED
Financial highlights
• Revenue up 58% year-on-year
• Operating profit increased16% year-on-year
• Capital investment in the UK energy market was £930.1million in 2022
2022 Group operating performance
The table below provides key financial information relating to our performance during the year. Further detail is provided in the individual divisional
sections of the Strategic Report.
2022* 2021 2022 2021 2022 2021
Financial key performance indicators (“KPIs”) £m £m £m £m £m £m
Scottish Power UK plc 8,434.9 5,349.7 834.5 720.4 930.1 999.0
* Revenue for 2022 includes £682 million from the sale of the EA1 transmission asset classified as inventory. Refer to accounting policy at 3M(f).
(a) The Group’s revenue and operating profit as presented on the Consolidated income statement on page 68.
(b) Additions to Intangible assets (refer to Note 6 on page 88), additions to Property, plant and equipment and reassessment of decommissioning asset within Property,
plant and equipment (refer to Note 7 on page 90). Refer to Notes 2A2.2 and 13 for further details.
Revenue has increased by £3,085 million to £8,435 million in 2022. This unprecedented increase is driven by the Energy Retail and Wholesale
division where revenues have risen from the sale of gas and electricity reflecting higher procurement costs (primarily energy but also network
costs). Also included in 2022 revenues is £682 million from the sale of the EA1transmission asset, classified as inventory.
As noted above, high energy costs continued to influence results in 2022. Whilst revenue increased, negative impacts in Energy Retail and
Wholesale persisted. These included: continued exposure to high energy costs due to variable renewable wind generation; inability to pass on
energy costs due to deficiencies in the price cap mechanism; and higher balancing and Balancing Services Use of System charges (BSUoS) costs.
However, it is expected that a significant proportion of Energy Retail and Wholesale losses incurred in 2022 will be recoverable in 2023 via changes
to the price cap methodology.
Operating profit for 2022 was £835 million, an increase of £114 million. This increase is mainly from increased production and revenue prices in
Renewables. Whilst Energy Network’s profit improved and Energy Retail and Wholesale losses reduced, these impacts were more than offset by the
adverse year on year impact of the 2021 £86 million pension liabilities revaluation referred to in Note 9F.
Capital investment
Our capital investment of £930 million in 2022 was largely in line with the prior year, reflecting an increase in investment in offshore wind and a
decrease in decommissioning assets due to an increase in discount rates.
Statement of financial position
Net assets of the Group decreased by £1,907 million in the year to £7,067 million. This reflects the impact of the statutory profit of £487 million
offset by adverse movements in the hedge reserve of £1,543 million principally as a result of the volatile commodity environment and dividends
of £834 million to the parent and non-controlling interests.
Impact of energy market volatility
The unprecedented rise in energy costs in the latter part of 2021 continued through most of 2022. This commodity market volatility resulted in
significant year-on-year movements in the Consolidated statement of financial position. The 2021 net derivative financial asset position decreased
by £1,865 million resulting in a net liability of £1,062 million at 31 December 2022. This decrease reflects both the delivery of commodity derivative
assets during 2022 and movements in the value of derivatives for future delivery.
Current trade and other receivables increased by £728 million in the year. This increase includes impacts from an increase in the value of collateral
posted as a result of commodity price movements, an underlying increase in customer receivables as a result of higher Energy Retail and Wholesale
revenues, and additional receivables recognised in respect of the UK Government assistance schemes implemented during 2022 (refer to Note 12).
Current trade and other payables increased by £377 million in the year. This was primarily due to the value of customer credits increasing as a result
of higher commodity costs flowing through to customer bills. The value of customer credits is expected to reduce in the first half of 2023 with
seasonal demand peaks. A payable was recognised in the year in respect of the EBSS scheme, however this was offset by the reduction in collateral
held due to commodity price movements (refer to Note 20).
Inventories
Inventories reduced by £313 million in the year, principally due to the sale of the EA1 transmission assets partially offset by the increase in other
transmission assets. Refer to Notes 2A2.2 and 13 for further details.
Retirement benefit obligations
The Group’s net pension surplus increased by £48 million, principally due to increases in UK corporate bond yields and a reduction in long-term
inflation expectations which reduced both the defined benefit obligations by £1,801 million and fair value of scheme assets by £1,753 million due
to the level of hedging in the asset portfolio. Refer to Note 9 for further details.
Revenue
(Note (a))
Operating Profit
(Note (a))
Capital Investment
(Note (b))
15
Scottish Power UK plc Annual Report and Accounts 2022
ENGAGING WITH STAKEHOLDERS continued
Group Strategic Report for the year ended 31 December 2022
Liquidity and cash management
We operate and manage a centralised cash management model within the UK, with liquidity being managed at the Company level. Our liquidity position
and short-term financing activities are integrated and aligned with Iberdrola’s.
The Iberdrola Group’s objective is to retain sufficient liquid resources and facilities to cover anticipated cash flow requirements for a period in excess
of twelve months; currently liquidity in the Iberdrola Group is in excess of €22 billion, which can be utilised, if required, to fund our activities.
Net cash flows from operating activities decreased by £850.8 million to £1,262.5 million for the year, as detailed on page 70. This has been driven by
changes in working capital discussed above. Net cash flows from investing activities have decreased due to a reduction in loans receivable from
Iberdrola Group companies. Net cash flows from financing activities have increased due to increases in loans payable to Iberdrola Group companies.
As detailed in the table below, cash increased by £686.2 million to £869.1 million, including £38.0 million of restricted cash (2021 £34.0 million). The
increase was primarily due to the sale of the EA1 transmission asset. Overall net debt increased by £836.2 million to £5,360.2 million principally due
to increases in loans payable to Iberdrola Group companies.
2022 2021*
Analysis of net debt Notes £m £m
Cash and short-term deposits (a) 869.1 182.9
Loans receivable from Iberdrola Group companies
(b) 1,224.8 1,177.5
Loans payable to Iberdrola Group companies
(c) (5,011.3) (3,492.5)
Loans payable to external counterparties
(c) (1,866.8) (1,840.0)
Current financial liabilities
(a) (23.8) (34.8)
Lease liabilities
(d) (523.8) (510.7)
Accrued interest
(e) (75.5) (50.3)
Interest receivable from Iberdrola Group companies
(b) 19.5 10.3
Cross currency swap
(f) 27.6 33.6
Net debt
(g)
(5,360.2) (4,524.0)
* Net debt has been restated to include Interest receivable from Iberdrola Group companies. This is to ensure consistency following inclusion of accrued interest in 2021.
(a) As detailed on the Consolidated statement of financial position on pages 66 and 67.
(b) As detailed in Note 12 on page 115.
(c) As detailed in Note 19(b) on page 121.
(d) As detailed in Note 8A(c) on page 93.
(e) As detailed in Note 19(a) on page 120.
(f) As detailed in Note 11(c) on page 103.
(g) Net debt is included as a relevant measure as it is the principal measure used to assess credit rating metrics.
Capital and debt structure
The Company is funded by a combination of debt and equity; all equity is held by Scottish Power Limited. Our financing structure is determined by
our position in the wider Iberdrola Group. As stated above, we can obtain funding via the liquidity resources maintained at the Iberdrola Group. The
Company holds investment grade ratings with Moody’s Investor Services (Baa1), Standard & Poor’s Rating Services (BBB+) and Fitch Ratings (BBB+).
There are no financial covenant obligations in relation to our external debt. Details of our financial risk management policy are set out in Note 11(e).
Dividend policy
The directors have had regard to the key principles of the Iberdrola, S.A. Shareholder Remuneration Policy, as noted by the Company, which include
that shareholder remuneration must: (i) be sustainable; (ii) be compatible with the maintenance of financial strength; and (iii) take account of the
financial profile of comparable companies. During 2022, interim dividends totalling £715 million were declared and paid (2021 £nil), reflecting the
Group’s share of the proceeds from the sale of the EA1 transmission asset (£415 million) and the Group’s 2022 financial performance in the Networks
and Renewables divisions (£300 million).
Investment and funding
The overall funding objective is to maintain a forecast debt position for the various Group entities at least in line with their current credit ratings. As
indicated above, the ongoing support of the ultimate parent company for future funding and liquidity provides a central underpinning for the directors
in their assessments of ongoing funding for the Company and Group.
Taxes and other government obligations
To help give an understanding of our contribution to UK taxes and other UK Government obligations, the table below highlights the key taxes and other
obligations in the financial year, on an accruals and cash basis respectively.
2022 2021 2022 2021
Analysis of taxes and other government obligations Notes £m £m £m £m
Social security costs (a) 35.8 33.1 35.5 32.0
Taxes other than income taxes
(b) 198 .1 231.8 192.6 236.8
UK Corporation Tax
(c) 82.2 46.8 22.6 93.4
316.1 311.7 250.7 362.2
(a) Consolidated income statement expense detailed in Note 23(a) on page 124.
(b) Consolidated income statement expense detailed in Note 24 on page 124.
(c) As detailed in Note 28 on page 125.
Consolidated income
statement expense
Cash tax paid in
the year
16
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
SCOTTISHPOWER DIVISIONS
ENERGY NETWORKS
Introduction to Energy Networks division
Our Energy Networks division is responsible for three regulated electricity network businesses in the UK. These businesses are ‘asset-owner companies’,
holding the regulated assets and the electricity transmission and distribution licences of the Group, and are regulated monopolies. They own and
operate the network of cables and power lines transporting electricity to around 3.5 million connected customers in the Central Belt and South of
Scotland, Cheshire, Merseyside, North Shropshire and North Wales.
One of the regulated businesses, SP Transmission plc (“SPT”), is a transmission network owner. The electricity transmission network consists of the high
voltage electricity wires that transport electricity from power stations to distribution system entry points or, in certain cases, direct to end users’
premises via a national network of high voltage assets.
The other two regulated businesses, SPD and SPM are Distribution Network Operators (“DNOs”). The electricity distribution networks are regional grids
that transport electricity at a lower voltage from the national transmission grid and embedded generators, and connect to industrial, commercial and
domestic users.
All three regulated businesses are natural monopolies and are governed by Ofgem via regulatory price controls. The primary objective of the regulation
of the electricity networks is the protection of consumers’ interests while ensuring that demand can be met and network companies are able to finance
their activities. Price controls are the method by which the amount of allowed revenue is set for network companies over the period of the price control.
Price control processes are designed to cover each company’s efficient costs and allow them to earn a reasonable return, provided they act in an
efficient manner, deliver value for customers, and meet Ofgem targets. Price controls are delivered on a regulatory year basis covering the period from
April to March. Therefore, the majority of Energy Networks' performance and key deliverables are measured and reported on this basis.
Operating review
Transmission business
The publication of the ESO’s Holistic Network Design (“HND”) identified a need for strategic investments of more than £5 billion in Energy Networks’
transmission projects in south and central Scotland by 2030. We continue to develop plans to deliver these significant investments which are key
enablers to net zero targets.
In July 2022, Ofgem approved the Final Needs Case for the multi-billion-pound Eastern High Voltage Direct Current (“HVDC”) link project. This project
will provide a direct current link from Torness in East Lothian to Hawthorn Pit in County Durham. A multi-disciplinary project delivery team has been
established to drive the project forward from design through to construction and operation. The project is currently funded via a pre-construction
allowance from Ofgem with project allowance for construction expected to be confirmed in second half of 2023.
In April 2022, we moved into the second year of the five-year RIIO-T2 price control period. We are still on track to deliver our agreed outputs during the
remainder of the period.
Distribution business
In April 2022, we moved into the final year of the eight-year RIIO-ED1 price control period. We are on track to deliver our agreed outputs during the
remainder of the period and are performing on, or ahead of, targets in our approach to safety, reliability and availability, and customer service. This
includes investment in incremental green recovery projects in the drive towards net zero.
Following extensive discussion with Ofgem, recovery of supplier of last resort payments to suppliers were included in distribution use of systems
tariffs charged from April 2022, resulting in a broadly neutral cash and earnings profile for 2022.
On 30 November 2022 Ofgem published its Final Determination on our RIIO-ED2 final business plan, setting out its decision approving our business
case for £3 billion of investment in our distribution grids between 2023 and 2028. Ofgem will now proceed to consult and decide on the licence
modifications required to give effect to the Final Determination, ready for the RIIO-ED2 price control period commencing on 1 April 2023.
Our values in action
As a network operator serving communities across England, Wales and Scotland, we have a critical role to play in supporting regional and national
decarbonisation ambitions. We are focused on providing a business in direct alignment with the priorities of our customers and stakeholders to
tackle climate change, and deliver the infrastructure and services required to achieve net zero. Our journey to a net zero future is already underway.
In the last regulatory year (April 2021 to March 2022), we have reduced our distribution business carbon footprint by nearly 33% (excluding losses)
and our transmission business carbon footprint by nearly 26% (excluding losses). Both of these reductions exclude losses which is measured as the
difference between network units distributed and network units caused by distribution losses in the transportation of electricity. Furthermore, we are
supporting societal decarbonisation by enabling low-carbon technologies, such as EVs and heat pumps, to be connected to our network. Energy
Networks is a major enabler on the UK journey to net zero and this is embedded in Ofgem’s price control mechanisms including reductions in our
carbon footprint through investment in low-loss transformers.
Storm Arwen in November 2021 was the worst storm in recent years, described as a 1-in-40 year event. However, our staff worked hard during the
storm to restore 88% of customers who lost power within 24 hours and 96% of customers within 48 hours. Former UK Energy Minister Rt Hon Charles
Hendry CBE also led a review of our operational response to Storm Arwen, with a particular focus on the rural communities worst affected. This has
helped to inform the actions we will take to improve our future performance in extreme weather events. There are mechanisms for exceptional events
within the price controls that mitigate financial risks to Energy Networks. Refer to ‘Physical risks and opportunities’ within the ‘Environment’ section of
Strategic Report for further information on the impact of storms.
17
Scottish Power UK plc Annual Report and Accounts 2022
SCOTTISHPOWER DIVISIONS continued
ENERGY NETWORKS continued
Group Strategic Report for the year ended 31 December 2022
2022 performance
Revenue Operating profit Capital investment
2022 2021 2022 2021 2022 2021
Financial key performance indicators (“KPIs”) £m £m £m £m £m £m
Energy Networks 1,380.4 1,276.3 599.3 572.2 623.7 607.6
Energy Networks' revenue is £104 million higher than the prior year. Allowable transmission revenues have decreased under RIIO-T2 by £9 million.
Distribution revenues include £88 million in relation to Supplier of Last Resort (“SoLR”) levies. There is an equal and opposite value within procurements.
Underlying distribution revenues are £25 million higher than the prior year reflecting collection of an under-recovery from prior years, partly offset by
a 3.8% (primarily domestic) drop in volumes, the impact of which will be recovered in future years.
Operating profit is £27 million higher than 2021 largely due to increased allowable revenue pricing, an £8 million gain from the sale of Manweb
Services Limited, partly offset by lower demand. Refer to Appendix 1 for further information.
Energy Networks’ capital investment increased by £16 million to £624 million in 2022, primarily due to higher distribution related spend. Higher levels
of investment are expected to continue to facilitate UK net zero targets as we progress through RIIO-T2 and also into RIIO-ED2.
The three regulated businesses within Energy Networks are required to prepare regulatory financial performance reporting for years ending 31 March.
Reporting of KPIs is aligned to the regulatory year end. Consequently, the latest available data for the last regulatory year for Energy Networks has been
disclosed in the table below, with the exception of distributed energy which is reported for the years ending 31 December.
Actual Target Actual Target
Non-financial key performance indicators (“KPIs”) Notes 2022 2022 2021 2021
Distributed energy (GWh) (a)
- SPD 15,626 N/A 16,215 N/A
- SPM 13,109 N/A 13,662 N/A
Annual reliability of supply (b)
- SPT 99.99% N/A 99.99% N/A
Customer interruptions (c)
- SPD 37.2 50.0 43.4 50.2
- SPM 30.3 35.9 30.5 36.1
Customer minutes lost (d)
- SPD 27.1 40.5 30.2 41.1
- SPM 30.9 35.9 28.8 36.8
(a) Gigawatt hours (“GWh”).
(b) Annual reliability of supply is provided by the system operator, National Grid.
(c) Recorded per 100 customers.
(d) Average number of minutes our customers had their supply interrupted.
Outlook for 2023 and beyond
We will continue to progress development of the Eastern HVDC link project including the award of engineering, procurement and construction turnkey
contracts for converter stations and cables. In addition, pre-construction planning for other direct current links as part of the HND suite of projects will
also be progressed.
A key focus for 2023 will be the targeted delivery of regulatory outputs for the close out of RIIO-ED1 and next year of RIIO-T2.
We will continue to implement the delivery plan for the increased volume of activity in RIIO-ED2. This plan includes increased recruitment in key areas
coupled with external contract placement.
RIIO-ED2 will be particularly significant for the decarbonisation of transport and domestic heating. The work outlined in our plan will kick-start the
much needed growth in these low-carbon technologies with over 670,000 EVs, 370,000 domestic heat pumps, and an additional 5 GW of low-carbon
electricity generation connected through the five-year investment period. Within the next ten years, we expect the number of EVs we supply on our
two distribution networks to increase by over 1.5 million with EV charging potentially doubling the demand of a domestic property. Through various
innovation projects that we have carried out, we have identified a key strategic role that we can play in the design and siting of cost-effective EV
charging infrastructure. We will also play a key role in the decarbonisation of heat. Heating buildings is responsible for a fifth of the UK’s greenhouse
gas (“GHG”) emissions and we have forecast up to 1.1 million heat pump installations by 2030 across our two distribution licence areas.
18
Scottish Power UK plc Annual Report and Accounts 2022
RENEWABLES
Introduction to Renewables
Renewables is responsible for the origination, development, construction and operation of renewable generation plants, principally onshore and
offshore wind, with a growing presence in technologies such as battery storage and solar.
In 2022, our project pipeline has continued to expand and includes: 5.9 GW of new potential onshore wind, solar and battery storage projects; 2.9 GW
of offshore wind within the East Anglia zone; and seabed rights for three offshore wind projects in Scotland with a total capacity of 7 GW, including one
fixed-bottom site and, in partnership with Shell, two floating sites. We continue to consider further opportunities to invest more widely in renewable
generation and storage.
Our assets continued to perform well throughout 2022 with good availability. Production was positive year-on-year as a result of good wind conditions
despite several categorised storms providing additional technical challenges and increased downtime. Our Operations and Maintenance team continue
to develop their internal capabilities in order to increase operational efficiencies.
Operating review
Onshore renewables
During 2022, our onshore pipeline increased to 5.9 GW (which includes 1 GW of projects in planning) and we progressed plans to take final investment
decisions on five onshore wind projects totalling 396 megawatts (“MW”) and ten solar projects totalling 326 MW which secured CfDs in the UK
Government’s Allocation Round 4 process in July 2022. This followed the acquisition of a number of solar projects with a capacity of up to 571 MW.
These sites are at an advanced stage of development, and following an estimated investment of more than £0.7 billion, we anticipate that they will
come into operation between 2024 and 2025. Refer to Appendix 1 for further details.
Our installed capacity also increased as we completed construction and operational handover of the 10 MW solar project at Carland Cross Windfarm, the
50 MW BESS at Whitelee Windfarm, the 50 MW BESS at Gormans in County Meath and the 3 MW BESS at Barnesmore in Donegal town. The BESS projects
will provide balancing services for the electricity networks in Great Britain (“GB”) and Ireland. Following the successful integration of our first solar and
BESS assets into our operational portfolio, work continues to ensure robust operational processes are implemented in order to successfully integrate the
continued growth in capacity, including a number of onshore wind farms and solar sites which are scheduled to enter into construction during 2023.
During 2022, we successfully secured two contracts following the UK Capacity Market auctions, including Whitelee BESS. These contracts allow National
Grid to manage security of supply and prevent future blackouts on the system.
In 2022, both the Blacklaw and Whitelee wind farms have been providing constraint management contracts under National Grid’s Constraint Pathfinder
Tender. Provision of this innovative service from wind generation allows National Grid to manage constraints on the system in a cost-effective manner.
Offshore wind
The 389 MW West of Duddon Sands project in the East Irish Sea is a 50/50 joint arrangement with Orsted West of Duddon Sands (UK) Limited. The
project is in its second operational term, with Orsted Power (UK) Limited providing operations and maintenance services. The site continues to deliver
availability in line with expectations.
The 714 MW EA1 project is a 60/40 jointly-owned arrangement between Renewables and Bilbao Offshore Holding Limited respectively. Availability has
been as expected in 2022, however, lower winds over the summer period have resulted in lower production. Following the Ofgem-led process, the
divestment of the site’s transmission asset to Transmission Capital Partners was completed in December 2022 for a consideration of £692.6 million,
with a Gross margin of £19.6 million.
We continue to develop a strong pipeline of offshore projects, including East Anglia Three (“EA3”), East Anglia One North (“EA1 North”) and East Anglia
Two (“EA2”) which are being developed as the EA Hub (totalling 2.9 GW). The 1.4 GW EA3 project secured three CfDs in Allocation Round 4 in July 2022
which makes a major contribution toward the UK Government’s ambition of 50 GW of offshore wind by 2030. Consents were granted for EA1 North and
EA2 on 31 March 2022. However, the consents are subject to a judicial review.
Following our success in the ScotWind seabed leasing round, option agreements were signed with Crown Estate Scotland for three offshore projects
with total capacity of 7 GW; two large-scale floating projects in partnership with Shell (3 GW MarramWind and 2 GW CampionWind) and one solo fixed-
bottom project (2 GW MachairWind). Refer to Note 10 for details of the joint arrangements. Significant fees of £229.8 million associated with the options
have been capitalised within the respective projects in Property, plant and equipment; MarramWind, MachairWind and CampionWind. Taken together,
these projects treble our offshore wind pipeline to more than 10 GW. Permitting activities are underway on these projects, with preliminary offshore site
investigations at MarramWind completed in August 2022, which will support the environmental assessment as part of the consenting processes. On all
three projects, discussions are ongoing with National Grid and other relevant parties to agree the timing and nature of grid connections.
Group Strategic Report for the year ended 31 December 2022
SCOTTISHPOWER DIVISIONS continued
2022 performance
Revenue Operating profit Capital investment**
2022* 2021 2022 2021 2022 2021
Financial key performance indicators (“KPIs”)
£m £m £m £m £m £m
Renewables 1,714.0 863.4 469.6 343.2 163.8 201.8
* Revenue for 2022 includes £682 million from the sale of the EA1 transmission asset classified as inventory.
** Refer to Notes 2A2.2 and 13 for further details.
Renewables revenue increased by £851 million to £1,714 million in 2022. Included in this increase is £682 million related to the sale of the EA1
transmission asset, classified as inventory. Underlying revenues increased by £168 million. Wind output increased by 16% (£86 million), reflecting more
productive weather conditions. In addition, revenue increased due to Renewables Obligation Certificates (“ROCs”), CfD annual indexation and higher
energy prices. These price increases were reflected in sales, primarily to Energy Retail and Wholesale.
Operating profit increased by £126 million to £470 million in 2022 including a £20 million gain on sale of the EA1 transmission asset, classified as
inventory. Higher revenues were partially offset by increased Balancing Services Use of System charges (“BSUoS”), higher operating and maintenance
costs as well as an additional depreciation charge due to a change in the useful life of some onshore assets. Refer to Note 2A2.3 for further information.
Capital investment decreased by £38.0 million to £163.8 million, reflecting a reduction in decommissioning assets due to an increase in discount rates
offset by investment in offshore wind and solar development sites.
Non-financial key performance indicators (“KPIs”)
Notes 2022 2021
Wind
Output (GWh)
(a) 7,824 6,726
Installed capacity (MW)
(b) 2,895 2,895
Availability
(c) 96% 96%
Solar
Output (GWh)
(a), (d) 7 –
Installed capacity (MW)
(b), (d) 10 10
Battery
Installed capacity (MW)
(b), (e) 104 104
(a) Output is a measure of the electrical output generated in the year, which in turn drives the revenues of the business.
(b) Installed capacity represents the total number of MW installed within the sites. This includes all sites constructed irrespective of whether they are generating or not.
(c) Availability is a measure of how effective the business is at ensuring wind generating plant is available and ready to generate.
(d) Solar capacity and output in respect of Carland Cross, which commenced operations in January 2022.
(e) Installed capacity relates to Gormans BESS, Whitelee BESS and Barnesmore BESS.
Outlook for 2023 and beyond
During 2023, we continue to consider opportunities to co-locate technologies, including solar and BESS projects, at existing wind farms in addition to
new sites. Our five onshore wind farms which secured CfDs in Allocation Round 4 are also scheduled to begin construction in 2023; Hagshaw Hill
Repowering, Douglas West Extension and Cumberhead West (all located in South Lanarkshire), and Kilgallioch Extension and Arecleoch Extension located
at existing wind farms in South Ayrshire. Our solar sites which secured CfDs are scheduled for construction between 2023 and 2025. We also have
discussions ongoing with various corporate companies to facilitate a route to market for a number of other projects in our pipeline.
In 2022, we welcomed the UK Government’s commitment to move to annual CfD auctions and we are preparing for Allocation Round 5 which is due to
open in March 2023, including submission of supply chain plans for EA1 North and EA2.
Our key growth priority areas for 2023 include developing a strategy for the repowering of our existing onshore operational sites. In addition to engaging
with landowners and local authority stakeholders, we are also targeting development sites in England with initial feasibility complete and under exclusivity
by mid-year 2023 for progressing to full feasibility assessment.
We continue to engage with the UK Government on a number of priority issues which have implications for the investment of renewable energy projects
including CfD Allocation Round 6, the ten-year review of the Capacity Market and the wide-ranging Review of Energy Market Arrangements (“REMA”)
which is considering longer-term market arrangements to support delivery of a decarbonised power system by 2035. We are also looking forward to the
Department for Economy in Northern Ireland developing a new renewable energy support scheme as it seeks to meet its decarbonisation goals.
The Scottish Government published a revised Onshore Wind Policy Statement in December 2022 which sets out an ambition to deploy 20 GW of onshore
wind by 2030, as well as plans to form a Strategic Leadership Group to develop an onshore wind sector deal. We are committed to working with the
Scottish Government and other industry participants in implementing a sector deal to maximise onshore wind investment, supply chain growth, and skills
and employment opportunities.
We also continue to engage with the Department for Energy Security and Net Zero (“DESNZ”), Ofgem and National Grid as part of the Offshore
Transmission Network Review (“OTNR”) and we expect to receive updated grid connection contracts from them for two of our offshore wind connections
as part of our ScotWind project pipeline and the next stage of the ESO’s HND. It is through the combined proposals of connection contracts and the HND
that we will seek to drive efficiencies and economies for all of our offshore sites. 2023 will see the beginning of the detailed modification proposals that
will deliver Ofgem’s concept framework proposals for OTNR that will require significant development until a stable enduring regime has been established.
In the current geopolitical environment, security and stability of supply and system restoration have become increasingly important issues and we are
working closely with equipment manufacturers to build upon the successes of our world first black start demonstrations at Dersalloch Windfarm. We
are using cutting edge ‘grid-forming’ technology and virtual synchronous machines to regulate the frequency and voltage to keep the electricity system
stable, balanced and recoverable during localised grid outages. Our intention is to replicate and develop this now proven technology at scale, which our
established pipeline is in an excellent position to enable, providing an alternative to conventional fossil fuels to restore power in the event of a major
disruption of the transmission system. Contracts for system restoration services will be tendered and managed by National Grid on a regional basis that
will enable revenue opportunities for providers.
19
Scottish Power UK plc Annual Report and Accounts 2022
SCOTTISHPOWER DIVISIONS continued
Group Strategic Report for the year ended 31 December 2022
20
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
SCOTTISHPOWER DIVISIONS continued
RENEWABLES continued
Renewables continually assesses the investment required to meet the criteria of the contracts to determine value opportunities available.In November
2022, the UK Government announced the introduction of the EGL on a variety of forms of low-carbon generation, expected to apply from 1 January 2023
and run until 31 March 2028 (subject to receipt of royal assent). The EGL is expected to levy an additional 45% tax on receipts made above an average
output price of £75 per MWh, indexed annually to the Consumer Price Index (“CPI”). The EGL will only apply to the Group’s exceptional receipts exceeding
£10 million in an accounting period and will allow for the deduction of a limited set of exceptional costs when calculating generators’ liability. It is
anticipated that 77% of the current generation portfolio will be in scope of the EGL, however, the cost will be dependent on the value of electricity sales.
ENERGY RETAIL AND WHOLESALE
Introduction to Energy Retail and Wholesale
Our Energy Retail business is responsible for the supply of electricity and gas to domestic and business customers throughout GB, including customer
registration, billing and handling enquiries in respect of these services. Energy Retail is also responsible for the associated metering activity including
the smart meter installation programme and managing our smart solutions and hydrogen activities. During 2022, an average of 4.8 million gas and
electricity customers were supplied by Energy Retail. At 31 December 2022, Energy Retail supplied 4.7 million gas and electricity customers. In Energy
Retail, we aim to deliver a top-class experience for our customers, one which is hassle free, making it easy for customers to contact us through a range
of routes, and provides flexibility to meet all of our customer needs.
The energy sector is evolving, and as a responsible energy supplier we continue to innovate to ensure our service offering meets the needs of
customers as market conditions and customer needs change. We aim to do this through:
• supporting the decarbonisation of the energy market through innovative offerings;
• providing additional support to our most vulnerable customers;
• taking a holistic approach to customer needs through good quality smart solutions; and
• linking our smart solutions with our competitive energy tariff offerings.
Our Energy Wholesale business continues to focus on managing the Group’s exposure to the UK wholesale electricity and gas markets for Energy Retail
and Renewables. Energy Wholesale is predominantly responsible for the purchase of external supplies of electricity and gas for onward sale to
customers and the sale of electricity from internal and external renewable power purchase agreements to wholesale market participants in the UK.
Energy Wholesale has contributed to the Group’s navigation of the volatile energy markets through its trading strategies, in addition to ensuring the
continued security of gas supply through optimal utilisation of its gas storage facility.
Operating review
The unprecedented increase in wholesale costs experienced since mid-2021 has continued to have a significant impact on the supply market landscape.
A significant number of suppliers failed during 2021 leaving substantial levels of mutualisation and industry levy costs to be recovered from the
remaining suppliers (and ultimately consumers) through the course of the current and future years. As a direct consequence of increased costs, there
are very few products available on the market and as such a significant proportion of consumers across the industry have defaulted on to the standard
variable tariff (“SVT”) price cap. This resulted in Energy Retail purchasing energy at higher market costs which were not recovered through the
equivalent price cap period. These unrecovered costs will be reclaimed through the price cap in 2023.
Government support schemes
On 8 September 2022, the UK Government announced a new EPG scheme for domestic customers. The scheme is an initial six-month intervention
which the UK Government states will ensure that a typical household in GB has energy bills that equate to an annualised cost of £2,500, and a monthly
average cost of £208 for the six months from 1 October 2022. This compares to Ofgem’s price cap level which increased from £3,549 to £4,279 for a
typical household effective 1January 2023 had it not been for this intervention. The EPG provides support to domestic consumers from the UK
Government, with suppliers being compensated for the cost of the EPG, and we have been working closely with the UK Government to implement this
scheme as efficiently as possible. Customers on fixed-term tariffs are also covered by the scheme with the level of support depending on the price of
their tariff compared to the average £2,500 level for variable tariffs. On 17 November 2022, in the Autumn Statement, the Chancellor announced that
the EPG will continue from 1April 2023 for a further year at an increased level of £3,000 for a typical household, although the 2023 Budget
annoucement delayed this increase until 1July 2023. The latest Ofgem price cap announced on 27 February 2023 reduced from £4,279 to £3,280 for
a typical household from 1April 2023, which is still higher than the level of EPG government support. At 31 December 2022, £513.6 million of revenue
had been recognised in the Consolidated income statement in relation to the EPG (refer to Note 22(a)), and £461.1 million had been received from the
UK Government with £52.5 million expected to be received in 2023. Refer to Notes 12 and 3M(d) which details information on the accounting policy.
The UK Government also introduced the EBSS which provides support to customers by giving a £400 credit to domestic electricity customers over
a six-month period (October 2022 to March 2023; £66-£67 per month). This has resulted in Energy Retail providing £519.5 million in EBSS rebates to
customers during Q4 2022. This includes an £8.8 million prepayment made in December 2022, which distributed timely support to vulnerable
customers over the New Year holiday period. At 31 December 2022, there was an EBSS liability on the Consolidated statement of financial position of
£174.1 million included within Note 20, and therefore a net EBSS liability of £165.3 million. This largely represents funds received from the UK
Government that as at 31 December were yet to be transferred to customers. Refer to accounting policy at Note 3R.
However, even with these interventions, wholesale prices are contributing to energy bills well above historic levels presenting those most vulnerable
households with real financial challenge. We consider it urgent that the UK Government continues to support those customers most in need, and we
are therefore pleased with the extension to the EPG announced in the Autumn Statement and Budget. The UK Government has also announced more
targeted support for subsets of households as the cost of living rises, including a £150 rebate for some Council Tax bands, and additional support for
customers in receipt of some benefits, including those with low income, disabilities and pensioners. While further support has been announced, we
continue to believe more government assistance is needed on an enduring basis to ease the burden on households who need it most. As set out in the
‘Energy Retail and Wholesale outlook for 2023 and beyond’ section of the Strategic Report, we will continue to engage with the UK Government and
Ofgem through key consultations regarding market reform and the fair recovery of the costs incurred over this volatile period.
21
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
SCOTTISHPOWER DIVISIONS continued
ENERGY RETAIL AND WHOLESALE continued
Recognising the pressure on non-domestic customers, the UK Government introduced a support scheme for such customers, similar to the domestic
EPG. Through the EBRS, which runs for a six-month period from 1October 2022, the UK Government is providing a discount on energy prices for all non-
domestic customers. This support applies to fixed contracts agreed on or after 1 December 2021, as well as deemed, variable and flexible tariffs, applying
to energy usage from 1 October 2022 to 31 March 2023. At 31 December 2022, £77.9 million of revenue had been recognised in the Consolidated income
statement in relation to EBRS (refer to Note 22(a)) and £17.2 million has been received from the UK Government. This leaves £60.7 million as a receivable
from the UK Government at year end, as disclosed in Note 12 (Refer to accounting policy at Note 3M(d)). On 9 January 2023, the UK Government
announced that the EBRS would be replaced by a new EBDS which will run from 1 April 2023 until 31 March 2024, but which will offer a lower level of
support compared to the EBRS.
We recognise the negative impact the cost of living crisis is having on our customers, particularly over the recent winter period, which is why we have
continued to engage with the UK Government offering solutions (such as EPG, EBSS and EBRS), backed by the industry, to support the UK economy, and
so these interventions are a welcome support for our customers. Further information regarding the support we offer to customers is set out in the
‘Energy Customers’ section of the Strategic Report.
Energy Retail changes
In 2022, Energy Retail expanded its restructuring programme announced in 2021 to ensure that it can continue to operate sustainably in these
unprecedented challenging market conditions, and in the future, with this programme delivering a transformation of the retail business from 2022 and
beyond. This has resulted in a transitory headcount reduction, with a view to developing existing staff and conducting recruitment to support the
restructuring in the coming years (Refer to Note 18).
In Q1 2022, a decision was made to exit the industrial and commercial (“I&C”) supply market over a period through the introduction of a number of
targeted actions to maximise the value of this segment. This decision was made largely due to the volatility experienced in this segment, particularly
around balancing costs as a result of the unprecedented rise in market prices and mutualisation costs from failed suppliers, and the resultant risk on
existing tight margins across this segment. All existing customers will continue to be serviced as normal until contracts naturally mature between now
and 2025. This decision has therefore had no material impact on the 2022 financial results.
Ofgem activity
In response to the widespread failure of energy suppliers, Ofgem has tightened the rules governing market entry for new suppliers, and of the ongoing
monitoring of existing suppliers, focused on operational capability and financial resilience. This has included regular financial stress testing alongside
general reporting requirements, and an ongoing programme of market compliance reviews focused on supplier compliance of key operational processes.
As a result of its Market Compliance Review activity, Ofgem commenced compliance or enforcement activity with almost all suppliers even where only
minor weaknesses were identified. Ofgem ranked Energy Retail as amongst the best performing energy suppliers in its direct debit and vulnerability,
review categories, with no material weaknesses for direct debit, and only minor weaknesses for vulnerability. For customers in payment difficulty, Ofgem
noted appropriate processes as being in place, but issued a Provisional Order in relation to our agent adherence to our policy, which was subsequently
revoked in December 2022 due to Ofgem being satisfied that we have taken action to address the weakness.
Energy Retail debt
Despite the significant increase in revenues driven by the higher wholesale costs, measures have been taken to reduce the impact on our debt book.
These measures include the aforementioned support schemes introduced by the UK Government (EBSS, EPG, EBRS and EBDS), which together offer
significant protection to both domestic and non-domestic customers from the rising cost of energy bills. This in turn reduces the level of customer debt
to be collected and mitigates much of the bad debt risk that may otherwise have been apparent from non-payment of bills. From an expected credit
losses perspective, the key risk is the collection of cash from the customer, as the funds to be received from the UK Government are considered to carry
significantly lower risk. Even with UK Government support, the underlying tariffs are still higher year-on-year for the average customer, and as such, the
operational focus remains on prompt cash collection and the retention of customers on secure payment plans. Ofgem recently announced an industry-
wide suspension of forced installation of prepayment meters as part of an ongoing review into industry practices. While it is unclear how long this
suspension will last, there is a recognition that this will limit our ability to offer customers a good option to have more control over their energy costs,
and may also have an adverse impact on future cash collection. The level of customer debt as a percentage of billing, is trending down from 2021 and
2020 levels. This is driven by actions we have taken to engage with customers who are able to pay but chose not to. Refer to the ‘Energy Customers’
section of the Strategic Report for further details on how we engage with and support customers. Refer to ‘Group principal risks and uncertainties’
section of the Strategic Report and Note 11(e)A3 for further details on recoverability of the debt book.
Smart solutions, smart metering and hydrogen
Our smart solutions operation is all about helping our customers decarbonise their lives and serving our customers at a time when they need us most.
We have a range of products and emergency services that our customers can call on, such as a national service for central heating or boiler breakdown, a
plumbing leak, or a kitchen appliance breakdown. We have long-term contracts with our strategic partners who provide these services on our behalf, and we
continue to work together focusing on the value and service being delivered for our customers, closely monitoring and learning from our customers’ feedback.
We offer a range of charging solutions for customers with EVs be it at home, in the workplace or public charging. The journey away from burning gas to
heat our homes is being helped with our electric heating solutions, in particular air source heat pump design and installation. We also help customers and
businesses generate their own green energy through our solar solutions, and with batteries the energy they generate can be stored for when it is needed.
Energy Retail continues to make significant efforts and investments to support its smart meter rollout which, in conjunction with our app, provides our
customers with a useful way to monitor and manage energy consumption. Despite the benefit a smart meter can provide, in 2022, we see the industry
behind its collective target.
Our Hydrogen department is focussed on producing green hydrogen. Only green hydrogen will support the UK's vision of achieving the net zero target,
and, together with Renewables, we plan to deliver our ambitions at scale. We have signed twenty partnerships with businesses across the UK to produce
green hydrogen and have been engaging with the UK Government to support the latest of our projects.
22
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
SCOTTISHPOWER DIVISIONS continued
ENERGY RETAIL AND WHOLESALE continued
Energy Wholesale
Energy Wholesale continues to purchase forward Energy Retail power and gas requirements and sell forward Renewables’ power generation, to provide
price certainty in an environment where commodity markets have continued to experience substantial price increases and price volatility. Considering
the current commodity market status, the Wholesale business has had to optimise its credit and collateral positions with market counterparties.
The Wholesale business has also sought to optimise use of its gas storage facilities given gas price increases and volatility. The unprecedented rise in
energy costs in the latter part of 2021 continued through most of 2022. This commodity market volatility resulted in significant year-on-year
movements in the Consolidated statement of financial position. Refer to ‘Statement of financial position’ section of the Strategic Report for further
details.
Our values in action
During 2022, governments and Ofgem continued to focus strongly on the need for suppliers to deliver a positive consumer experience for all customer
groups, recognising the need for suppliers to identify the needs of their customers, especially those in vulnerable circumstances, with Ofgem issuing
a number of market-wide reviews of supplier compliance. After the challenges facing consumers as a result of the COVID-19 pandemic, the impact of
rising energy prices and broader cost of living challenges, 2022 has seen a significant focus on this. Energy Retail has taken action to ensure we can
deliver for our customers in this challenging environment. This includes the actions we have taken to support customers directly, as well as supporting
customers in accessing support from relevant third parties and influencing the UK Government to implement support interventions. Refer to the
‘Energy customers’ section of the Strategic Report for further details.
2022 performance
Revenue Operating loss Capital investment
2022 2021 2022 2021 2022 2021
Financial key performance indicators (“KPIs”) £m £m £m £m £m £m
Energy Retail and Wholesale 6,586.2 4,107.3 (234.5) (278.8) 123.1 170.7
Energy Retail and Wholesale revenue increased by £2,479 million to £6,586 million in 2022. Retail domestic revenues increased by £1,657 million
mainly as a result of tariff increases driven by higher energy costs, partly offset by lower volumes from milder weather. Business revenues have also
increased due to the higher cost of energy.
Energy Retail and Wholesale operating losses improved by £44 million to an operating loss of £234 million. Whilst revenues increased, so too did
procurements (mainly higher energy costs but also higher network costs). As a result, gross margins were £51 million lower year on year. The unprecedented
rise in energy costs in the latter part of 2021 continued to influence results in 2022. Negative impacts included: continued exposure to high energy costs due
to variable renewable wind generation; inability to pass on energy costs due to deficiencies in the price cap mechanism; and higher balancing and BSUoS
costs. It is expected that a significant proportion of the losses incurred in 2022 will be recoverable in 2023 via changes to the price cap methodology.
These changes include a move to a quarterly price cap update, and additional allowances for historic loss recovery. Operating costs and other taxes
decreased by £82 million primarily as a result of lower ECO scheme activity. Bad debt costs decreased by £14 million.
Capital investment in Energy Retail and Wholesale decreased by £48 million mainly due to decreased contract acquisition costs. This reflects the
downturn in supply market competition following the energy cost increase.
Non-financial key performance indicators (“KPIs”)
Notes 2022 2021
Volume supplied (GWh) (a) 38,199 43,742
Customer service performance
(b) 3rd 4th
Smart meters in portfolio
(c) 51.2% 41.3%
Customers (thousands)
(d)
– Electricity 2,862 2,757
– Gas 1,934 1,856
4,796 4,613
(a) Decrease due to reduced customer demand resulting from high energy costs and economic crisis throughout 2022.
(b) Based on the Citizens Advice Domestic Energy Suppliers’ Customer Service Report. Rankings reflect ScottishPower’s position relative to the other ‘Big Seven’ energy
companies. We have continued to invest in our customer service teams with a key focus on improving our timely management and resolution of complaints, coupled
with an overall focus on service quality across all of our advisors.
(c) Percentage of relevant Energy Retail customer base with a smart meter.
(d) Customer numbers are based on the average number of Meter Point Administration Numbers for electricity customers and Meter Point Reference Numbers for gas
customers during the year to 31December.
Outlook for 2023 and beyond
During 2022, there continued to be a strong focus on the default tariff cap methodology and on the financial resilience of suppliers after the significant
level of suppliers failing during the second half of 2021 and into 2022, with a number of consultations being issued by Ofgem which will likely lead to
changes into 2023 and beyond.
The new quarterly price cap methodology introduced in August 2022 will continue into 2023 alongside the additional allowances introduced to recover
supplier losses relating to historic ‘unexpected SVT’ and backwardation costs. Ofgem has issued consultations on the methodology in a number of areas,
most notably proposals relating to the appropriateness of the current 1.9% earnings before interest and tax (“EBIT”) margin allowance, seeking views on
the inputs to the allowance including how it is implemented. Ofgem has also set out proposals to extend the temporary measures to protect suppliers
against further impacts in the circumstances of increased switching due to falling wholesale prices via a Market Stabilisation Charge (“MSC”) paid by the
gaining supplier to the losing supplier, and a ban on acquisition-only tariffs (“BAT”) to March 2024. Looking beyond this, Ofgem are also considering
implementing the BAT on an enduring basis.
23
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
SCOTTISHPOWER DIVISIONS continued
ENERGY RETAIL AND WHOLESALE continued
Longer term, the future of the price cap will be influenced by the content of the Energy Bill published on 6July 2022 by the UK Government, which
proposed to enable extensions of the cap beyond 2023 without a replacement longstop, instead the relevant Secretary of State (“SoS”) will be able to
seek parliamentary approval for extensions of one or two years through secondary legislation. The July 2022 Energy Bill also proposed to introduce an
ECO buyout mechanism to facilitate removing the small supplier threshold. The Energy Prices Act 2022 received royal assent on 25 October 2022 with
provisions to enable the SoS to terminate the cap on notice and requiring Ofgem to take account of the impact on public spending (having regard to
information or guidance provided by the SoS) when setting the price cap level. We continue to lobby and influence the UK Government and Ofgem
regarding the need for suppliers to recover efficiently incurred costs and be able to finance their businesses in a sustainable manner, and the need to
protect the most financially vulnerable consumers in a targeted manner via a social tariff.
Ofgem published financial resilience proposals in late 2022 which would require suppliers to protect Renewable Obligation payments from April 2023,
prepare significant additional annual reporting requirements around financial and operational resilience, and require suppliers to hold sufficient capital
by the end of March 2025. At this point, Ofgem is not requiring suppliers to protect customer credit balances and instead will rely on the proposed
minimum capital and additional reporting requirements, but with additional powers to require ringfencing of credits where a supplier’s reporting
breaches particular financial and operational triggers.
We expect Ofgem to continue with its increased monitoring of supplier operational processes and capability into 2023 via its ongoing programme of
market compliance reviews to ensure suppliers are compliant with all licence conditions, including revisiting market compliance reviews undertaken
in 2022.
In the years ahead, our smart solutions department plan to make solutions more accessible and increase engagement through monitoring and
optimisation services. Physical solutions such as EV charging, solar generation, battery storage and renewable heating will be more accessible as we
innovate to reduce costs and offer financial solutions alongside partners.
As the cost of energy is in sharp focus for households and businesses, we will help customers engage with their energy consumption through services
such as our energy insight app and new monitoring and optimisation services that will link in with low-carbon technologies and the grid. When the
energy wholesale market conditions are right, we will offer supporting tariffs that will help customers shift their consumption to periods of lower
carbon intensity and lower cost.
We have positioned ourselves as the leading voice in the development of a green hydrogen industry in the UK. On the back of significant customer
interest in the region, we are developing a 20 MW facility at our existing Whitelee Windfarm, which is intended to produce green hydrogen in 2024,
subject to planning consent. We have also made significant progress in the North of Scotland Hydrogen Project located in the Cromarty region, which
has been developed to produce green hydrogen for the Highlands. The first phase of this project is a 29 MW electrolyser which has multiple industrial
offtakes and is intended to produce hydrogen in 2025. Following the public consultations held in 2022, the Cromarty project shall be considered by
the local planning authority through the first half of 2023 allowing the project to progress towards its target for the Commercial Operational Date
(“COD”) during 2025. These production facilities will be amongst the very first commercial scale green hydrogen sites in the UK and will support the
growth of hydrogen economies across Scotland.
We aim to hold share of the UK Government’s target of 10 GW of green hydrogen production by 2030. As such, 2023 will see us develop several large
sites to create a portfolio of hydrogen opportunities.
Energy Wholesale will continue to contribute towards the management of new, flexible assets being commissioned by Renewables and delivery of
greener energy for Energy Retail. Energy Wholesale continues to optimise the value of its gas storage facility and to manage the ongoing
decommissioning and sale of the non-operational sites of former generation plants.
24
Scottish Power UK plc Annual Report and Accounts 2022
Compliance with regulatory obligations especially
in the context of sudden changes of policy, or
interventions outside established regulatory
frameworks.
Specific areas:
Positive and transparent engagement with all appropriate stakeholders to ensure
that long-term regulatory stability and political consensus is maintained, and
public backing is secured for the necessary investment in the UK energy system.
Providing stakeholders with evidence of the risks of ad hoc intervention in
markets.
Group Strategic Report for the year ended 31 December 2022
REGULATORY AND POLITICAL RISKS
– IMPACTS THE GROUP
Smart meter programme – impacts Energy Retail
and Wholesale
The potential for non-compliance with the UK
Government’s mandate to complete the rollout of
smart metering to Energy Retail customers in
accordance with prescribed timescales.
Dedicated project team focused on ensuring adequate business processes
and systems are developed. The team is responsible for ensuring the rollout
capability is secured to enable deployment of meters.
GROUP PRINCIPAL RISKS AND UNCERTAINTIES
The delivery of our strategy requires the Group to conduct business in a manner benefitting customers through balancing cost and risk, while delivering
shareholder value and protecting our performance and reputation by prudently managing the risks inherent in the business. Risk management within
the Iberdrola Group, and so the Group, is based on foresight, independence, commitment to the Group’s business objectives, and the engagement of
senior management and the SPL Board. To maintain this strategic direction, the Group develops and implements risk management policies and
procedures, and promotes a robust control environment at all levels of the organisation.
During 2022, the governance structure was supported by risk policies approved by the board of directors of Iberdrola (“the Iberdrola Board”) and
adopted by the SPL Board. Our business risk assessment team and independent group risk management function supported the SPL Board in the
execution of due diligence and risk management. In addition, the Group is represented at the Iberdrola Risk Management Committee to ensure that the
business risks are adequately assessed, monitored, mitigated and managed. Further details of the Group’s governance structure and risk management
are provided in the directors report.
The principal risks and uncertainties of the Group, that may impact current and future operational and financial performance and the management of
these risks are described below.
Price controls – impacts Energy Networks
Failure to deliver the Energy Networks’
transmission and distribution outputs agreed with
Ofgem in their respective price controls under the
RIIO framework.
Mitigating actions include formulating detailed investment, resource, outage,
contingency plans supported by an extensive procurement strategy and having a
funding strategy in place to support delivery. Good communication and co-
ordination of activities across the business is integral to success, complemented by
a comprehensive monitoring regime that provides early warning of potential issues.
Structural market volatility – impacts Energy
Retail and Wholesale
Structural uncertainty resulting from unprecedented
volatility in wholesale energy prices and regulatory
market interventions.
Positive and constructive engagement with key industry stakeholders including both
Ofgem and various government departments regarding the requirement for suppliers
to recover all costs incurred for 2022, and the need to make fundamental changes to
the market to ensure efficient suppliers can recover costs in the future. Engagement
includes responding to consultations, and proactively lobbying key stakeholders
providing evidence on our costs and preferred regulatory amendments.
SVT indexation – impacts Energy Retail
and Wholesale
As a consequence of unprecedented high wholesale
energy prices and ongoing volatility, despite changes
implemented by Ofgem to the price cap methodology
and temporary measures to mitigate the impact of falling
prices, there remains risks to suppliers recovering the
real cost of supplying and servicing the customer,
preventing Energy Retail and Wholesale achieving a
reasonable profit margin. There also remains uncertainty
over what other measures the UK Government may take
to protect consumers and whether such measures will
be funded through the price cap mechanism.
Engaging with the UK Government and Ofgem to advocate for a price cap that
accurately reflects the cost of supplying energy to customers, and the need to
extend Ofgem’s temporary Market Stabilisation Charge and Ban on Acquisition-only
Tariffs measures. Energy Wholesale ensures that the indexation is hedged
appropriately as part of its trading strategy.
RESPONSE
CfD indexation – impacts Renewables
CfD Strike Price is indexed by CPI annually. Limited
protection from supply chain cost increases.
Engaging with UK Government on potential to update strike price indexation to
reflect inflation indices more relevant for construction costs.
GLOBAL FINANCIAL MARKET VOLATILITY
RISKS – IMPACTS THE GROUP
RESPONSE
25
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
GROUP PRINCIPAL RISKS AND UNCERTAINTIES continued
Impacts arising from market and regulatory reactions
to events including the Ukraine war. As well as positive
or negative changes in the UK economy these could
include:
• increased volatility on the value of Sterling and
foreign currencies;
• movement in the market price of electricity and gas
and associated impact on collateral requirements on
trading positions; and
• increased volatility and estimation uncertainty risks
on factors affecting the pension schemes including
asset values and key assumptions.
Positive and transparent engagement with all appropriate stakeholders to ensure
that long-term regulatory stability and political consensus is maintained, and
public backing is secured for the necessary investment in the UK energy system.
Providing stakeholders with evidence of the risks of ad hoc intervention in
markets. In addition to monitoring ongoing developments, the Group has specific
procedures in place to manage these key market risks. Further details are as
follows:
• a treasury risk management policy (comprising foreign currency, liquidity and
interest rate risk) is in place to hedge financial risks which is discussed further
in Note 11;
• the mitigation of energy market risk is discussed further in Note 11(e)B and
consideration has been given to appropriate levels of collateral due to current
market conditions (refer to Note 11(d)); and
• the pension scheme valuation risk is discussed further in Note 9.
Increased and appropriate resources with the correct
capabilities are required to grow our businesses.
In Energy Networks, the increased retiral rate and
challenging RIIO-ED2 and RIIO-T2 programmes require
substantial recruitment in the coming years.
In Renewables, attracting resources is a challenge
with the complexity of a competitive market with
scarce skilled resource.
Maintain strategic work force planning and implementation for Energy Networks,
with particular emphasis on future skills, key capabilities and resourcing for
growth opportunities, as well as best use of trainee programmes.
Renewables’ Retention Project to identify short and medium-term solutions. This
includes an Offshore Global Retention Plan. Identification of critical and high risk
roles within Renewables.
Increased size and skill set of our recruitment team and onboarded offshore
agencies for niche hard-to-fill roles within Renewables.
The risk that Iberdrola’s and the Group’s strategy,
investments or operations have a significant impact on
the environment and on national and international
targets to tackle climate change, or that climate change
has a significant impact on our assets.
Refer to ‘Sustainability’ section of the Strategic Report
for further details.
ScottishPower's and Iberdrola's commitment to tackle climate change is reflected
in our strategy.
Refer to the ‘Sustainability’ section of the Strategic Report and Iberdrola’s latest
Integrated Report and Sustainability Report for further details.
A major health and safety incident in the course
of operations could impact staff, contractors,
communities or the environment.
The Group has certified management systems in place to deliver activities as
safely as possible. In addition, a ScottishPower Health and Safety function exists
and provides specialist services and support for the businesses in relation to
health and safety. A comprehensive framework of health and safety policy and
procedures, alongside audit programmes, is established throughout the Group,
which aims to ensure not only continuing legal compliance but also to drive
towards best practice in all levels of health and safety operations. Further details
are provided in the ‘Employees’ section of the Strategic Report.
CLIMATE CHANGE RISKS – IMPACTS THE
GROUP
RESPONSE
HEALTH AND SAFETY RISK – IMPACTS
THE GROUP
RESPONSE
RECRUITMENT AND RETENTION OF STAFF
RISKS – IMPACTS THE GROUP
RESPONSE
26
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
GROUP PRINCIPAL RISKS AND UNCERTAINTIES continued
CYBER SECURITY RISKS – IMPACTS THE
GROUP
RESPONSE
We operate within an environment where there is the
presence of sophisticated and opportunistic cyber
security threat actors motivated to identify and take
advantage of flaws and weaknesses in our cyber
security defences. ScottishPower, in alignment with UK
Regulation, takes the protection of our Data and the
provision of our essential services very seriously. We
continue to invest significantly in our people, processes,
and technologies to enhance our capabilities to prevent,
detect and respond to security threats.
The main risks are:
• Risks related to operational technology used to
manage the production, management and
distribution of energy, or physical safety systems
(fire protection, CCTV, alarm reception centres).
• Risks related to information technology (“IT”) that
enables us to operate critical services.
• Risks related to the confidentiality, integrity, and
availability of our key information assets.
• Other cyber security risks impacting reputation.
We continue to focus on our enterprise security risks through enhanced internal
governance, complemented by the adoption of a three lines of defence model
with clear roles and responsibilities established across the Group. This has involved
the recent appointment of a ScottishPower Chief Information Security Officer as
well as the creation of Business Information Security Officers.
These risks are manged in accordance with the basic principles defined in internal
cyber security rules promoting the safe handling of data, use of IT and
communications systems, use of operational technology systems and assets, and
other cyber assets, reinforcing detection, prevention, defence, and response
capabilities against possible attacks.
The Iberdrola Group currently has specific insurance against cyber risks, under the
terms allowed by the insurance market, which is revised and updated periodically
in view of the rapid evolution and wide variety of cyber risks.
Interruption due to post lockdown inabilities to
restart efficient supply chains, made worse by the
Ukraine war, higher costs due to commodity prices,
increased risk of supplier failure due to the
deterioration of industrialised economies and excess
demand over supply.
Identifying potential shortages and gaps in the supply of products, equipment
and labour. The supply chain is advised by the Procurement department in
conjunction with advice from the Compliance, Legal and Risk departments. The
upward pressure on costs due to the macroeconomic environment is managed,
and strategies, such as hedging and expanding our supplier base, are developed
and implemented. The risk is spread through supply chain engagement,
especially with new suppliers in new business areas and technologies.
Failure to deliver large and complex projects on time
and within budget.
ScottishPower and Iberdrola have a strong track record in delivering large scale
engineering projects with significant experience from developing numerous
onshore and offshore wind farms and Energy Networks projects. Project delivery is
supported by the use of established and experienced suppliers and advisors, along
with robust financial management including appropriate foreign exchange hedging
and funding strategy.
Continue constructive engagement with Ofgem on plan deliverability and regulatory
regime around HND projects.
Reduced security of supply due to potential asset
failures alongside decreased generation capacity.
Reduced security of supply has the potential to
disrupt many of our customers, in both our own
licence areas and beyond.
Risk-based asset investment programme in place, business continuity and
emergency planning well established including Electricity System Restoration
Strategic spares policy in place. Continuing engagement with Ofgem on GB
resilience.
SUPPLY CHAIN RISKS – IMPACTS THE GROUP RESPONSE
PROJECT DELIVERY RISK – IMPACTS ENERGY
NETWORKS AND RENEWABLES
RESPONSE
REDUCED SECURITY OF SUPPLY RISKS
– IMPACTS THE GROUP
RESPONSE
27
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
GROUP PRINCIPAL RISKS AND UNCERTAINTIES continued
Increased focus on affordability due to the cost of living
crisis creates a greater number of consumers at risk and
a greater burden on suppliers to service and support
customers. The future level of support offered by the
UK Government which deliver benefits to customers
struggling with their energy bills may be lower.
Increase in the level of overdue debt specifically in
Energy Retail, driven by the impact of rising bills, high
cost of living and deterioration in the economy,
impacting on the level of debt write-off required.
We continue to deliver on improvement actions in relation to vulnerability
and affordability. Engagement continues with the UK Government, third parties
and Ofgem, on the challenges facing suppliers in supporting customers during
the ongoing cost of living crisis, and the need for more targeted consumer
protection for our most vulnerable customers.
There are measures in place across the Energy Retail business to manage the
key drivers of overdue debt, assess and implement remedial and preventative
action, and to establish key metrics to monitor progress in reducing debt levels.
Refer to Note 11(e) for further details.
Low-carbon technology uptake
Network operators are key facilitators to governments’
net zero ambitions and the failure of Energy Networks
to respond to customers’ changing requirements
through the low-carbon transition (for example EVs,
distributed generation and storage) could result in
a failure to meet these targets.
Extension of competition in transmission
The extension of competition in transmission could
impact Energy Networks as the introduction of
untested competition models in the transmission
business will introduce delays to net zero.
Mitigating actions influencing developments at industry forums, undertaking
scenario modelling of the impact of low-carbon technologies, considering
technical and commercial innovation projects, engaging with key stakeholders
and owning a clear Distribution System Operator (“DSO”) vision.
Continued engagement with Ofgem and DESNZ to discuss their proposals for
introducing competition delivery models in the transmission business.
RISKS OF INTERRUPTIONS TO NET ZERO
TIMESCALES – IMPACTS ENERGY NETWORKS
RESPONSE
Impact of competition on Energy Retail’s market
share and profitability.
Constantly managing our operating cost base to ensure that our profitability
is protected and focusing on growth through organic and other acquisition
opportunities.
NON-FINANCIAL AND SUSTAINABILITY INFORMATION STATEMENT
The table below demonstrates, by cross-reference, how the non-financial reporting regulations within UK company law have been met. A description of
our business model can also be found on page 1.
NON-FINANCIAL TOPIC OUR POLICIES, PRINCIPAL RISKS AND KPIs
RELATING TO EACH TOPIC
PAGE REFERENCE
Environmental matters • Environmental strategy and policies
• Environmental risks
• Environmental KPIs
Refer to pages 29 to 30 and 32
Refer to pages 33 to 35 and 38 to 39
Refer to pages 41 to 44
The Group’s employees • Employee strategy and policies
• Employee-related risks
• Employee KPIs
Refer to pages 5 to 8
Refer to page 25
Refer to pages 5 to 8
Social matters • Community-focussed strategy and policies Refer to pages 45 to 48
Human rights, anti-corruption
and anti-bribery
• Human rights and anti-slavery policies
• Compliance and whistleblowing policies
Refer to pages 12 to 13
COST OF LIVING CRISIS RISKS – IMPACTS
ENERGY RETAIL AND WHOLESALE
RESPONSE
MARKET POSITION RISK – IMPACTS ENERGY
RETAIL AND WHOLESALE
RESPONSE
Group Strategic Report for the year ended 31 December 2022
SUSTAINABILITY
An energy model in harmony with nature and people
The Group’s sustainable energy business model embeds respect for the environment, actions to combat climate change, and delivery of the UN’s
Sustainable Development Goals (“UN SDGs”) at its heart. It is crucial that we address the three environmental crises (climate, biodiversity and raw
materials) in a way that creates sustainable value. We must also respond decisively to social challenges, objectives and goals, including human rights,
equality, diversity, and inclusion.
During 2022, we worked to develop a new Sustainable Development Strategy, based on the UN SDGs, to guide us in responding to the challenges and
opportunities laid out above whilst delivering a just transition that reflects the needs of the customers and communities we serve. Guided by internal
and external stakeholders, this strategy will be launched in Q2 of 2023. We contributed to the creation of a leading package of global ESG targets
launched by Iberdrola in November 2022 and worked to operationalise these. The climate disclosures included in this document are not intended to
be fully compliant with the Taskforce on Climate-related Financial Disclosures (“TCFD”) requirements and recommendations. Full compliance is
mandatory for SPL (as head of the ScottishPower Group) for the accounting period commencing 1 January 2023. TCFD disclosures in these Accounts
will be provided on a voluntary basis.
We continue to actively collaborate and influence external partners, peers and stakeholders. We are members of the Corporate Leaders Group UK, the
Aldersgate Group, the UN Global Compact, and in Scotland, we are supporters of the Climate Emergency Response Group. We continue to be a very
active member of the Scottish Business Climate Collaboration, a group of leading corporate businesses with major footprints in Scotland working to
help lead the fight against climate change and inspire action as a legacy of COP26. We also remain very active in the Sustainable Glasgow Green
Economy Hub, chaired by the Chief Operating Officer of our Energy Networks division, and the Edinburgh Climate Commission, chaired until the end
of 2022 by the ScottishPower Head of Climate Change and Sustainability.
The following sections lay out the progress we made on environmental and social impact during 2022, covering:
• Environment
• Climate, including TCFD and Streamlined Energy and Carbon Reporting
• Biodiversity
• Circularity
• Social Impact
ENVIRONMENT
We are committed to reducing our environmental footprint and responding to the risks and opportunities of climate change by:
• reducing emissions to air, land and water and preventing environmental harm;
• identifying and managing climate risks and opportunities, and implementing adaptation measures where required;
• minimising energy consumption and use of natural and human-made resources;
• sourcing material resources responsibly, cutting waste and encouraging re-use and recycling; and
• protecting natural habitats and restoring biodiversity.
Climate
The TCFD was established by the Financial Stability Board in 2015 to develop a set of consistent, climate-related financial risk disclosures to be used
by companies and certain other public-interest entities to provide meaningful information to their investors and other stakeholders on the climate-
related risks and opportunities facing their organisation.
The four pillars of TCFD are: Governance; Risk management; Strategy; and Metrics and targets. Building on our introduction to TCFD in last year’s
Annual Report and Accounts which largely focused on governance and risk management, we have provided an update on our activities for each of
the four pillars, applying the UK non-binding guidance issued in February 2022. Going forward we will look for ways to enhance future disclosures
as our understanding develops, including our first mandatory disclosures in the 2023 Annual Report and Accounts.
Scottish Power UK plc Annual Report and Accounts 2022
28
29
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
This table outlines where our consideration of each TCFD recommendation can be found within the Strategic Report:
RECOMMENDATION PAGE REFERENCE
Governance Description of our governance arrangements in relation
to assessing and managing climate-related risks and
opportunities.
Refer to pages 29 to 30
Risk management Description of how we identify, assess, and manage
climate-related risks and opportunities.
Description of how the processes for identifying, assessing,
and managing climate-related risks are integrated into our
overall risk management process.
Refer to pages 31 to 32
Refer to pages 31 to 32
Strategy Description of the principal climate-related risks and
opportunities arising in connection with our operations
and the time periods by reference to which those risks
and opportunities are assessed.
Refer to pages 33 to 35
Description of the actual and potential impacts of the
principal climate-related risks and opportunities on our
business model and strategy.
Refer to pages 33 to35
Analysis of the resilience of our business model and
strategy, considering different climate-related scenarios.
Refer to pages 36 to 41
Metrics and targets Description of the targets used by us to manage climate-
related risks and to realise climate-related opportunities
and of performance against those targets.
Refer to pages 41 to 42
Description of the KPIs used to assess progress against
targets used to manage climate-related risks and realise
climate-related opportunities and of the calculations on
which those KPIs are based.
Refer to pages 41 to 44
ENVIRONMENT continued
Governance
Climate change is integrated into many aspects of our corporate governance and is visible throughout ScottishPower. The corporate governance system
applied by the Company is known as the ScottishPower Governance and Sustainability System (“SP GSS”), which is approved by the SPL Board. The SP
GSS is expressly structured around ESG standards, as well as directly referencing the UN SDGs. The SP GSS comprises five chapters: By-laws, Purpose,
Environment and climate action, Social commitment, and Corporate governance (the latter three chapters corresponding to ESG considerations). Refer
to the ‘Corporate governance system’ section of the Directors’ Report for further details on the SP GSS.
Each of the boards of the Heads of Business Sub-holding companies SPENH, SPERL and SPRH (as defined on page 1) approve their own Governance
and Sustainability System (“Business GSS”) for their division, Energy Networks, Renewables, and Energy Retail and Wholesale, respectively. Each Business
GSS is directly modeled on the SP GSS, and principally adopts the core policies and documents of the latter as they relate to each division, subject to
specific business requirements and in compliance with each business’ corporate autonomy. For further information regarding these bodies, refer to the
‘Administrative, management and supervisory bodies’ subsection under the ‘Corporate governance’ section of the Directors’ Report.
Policies for managing climate-related risks and opportunities
There are policies within the Purpose and Environment and climate action chapters adopted within the SP GSS that are used to assess and manage
climate-related risks and opportunities. The General Sustainable Development Policy (“GSDP”), along with the Stakeholder Engagement Policy, constitute
the general framework, guidelines, instructions and criteria against which all the other specialised (environmental, social, risk or corporate governance)
policies are held. The GSDP underpins Iberdrola’s strategy regarding sustainable development around the ESG criteria and objectives, and how its
business activities will be carried out to attain sustainable business value especially in relation to UN SDGs 7 and 13 regarding the supply of accessible
and clean energy and the fight against climate change, respectively.
The environment and climate action policies (Sustainable management, Environment, Climate action, Biodiversity), are aligned with the goals and the
path established by the Paris Agreement and the UN 2030 Agenda for Sustainable Development. These policies constitute the Group’s approach to
environmental challenges such as climate change and biodiversity loss, while helping to identify and take advantage of the climate-related
opportunities arising from the energy and ecological transition. For example, the Climate Action Policy establishes a framework for articulating our
strategy and business model in a manner consistent with our commitment to the fight against climate change. To implement our commitment to
climate action, the following are some of the principles applied in our business activities:
30
Scottish Power UK plc Annual Report and Accounts 2022
ENVIRONMENT continued
Group Strategic Report for the year ended 31 December 2022
• Set and review short, medium and long-term emission mitigation targets in line with the Paris Agreement and subsequent updates deriving from
climate change science.
• Integrate climate change into internal strategic planning and decision-making processes, as well as into the analysis, management and reporting
of long-term risks, taking into account the recommendations of the TCFD and other leading organisations regarding climate governance and the
reporting of climate risks and opportunities.
• Promote suppliers' awareness of climate change and encourage them to adopt practices consistent with those of the Group in this area, and
particularly with regard to reducing their carbon footprint.
• Have an environmental management system, which allows for evaluating, analysing, managing and reducing environmental risks, as well as
improving the management of resources and optimising investments and costs, and which incorporates all relevant climate variables.
• Encourage research and the development of methodologies in the evaluation and design of adaptation measures, and take appropriate measures
to mitigate the impacts of climate change on the production of energy from renewable sources, integrating climate science into the setting of
objectives and internal procedures.
ScottishPower Group Structure, the SPL Board and Committees
The board of directors of the Company (“SPUK Board”) makes decisions and dispenses with matters in accordance with its own terms of reference and
the Company’s Articles of Association (both which are deemed to form part of the SP GSS as adopted by the Company). Refer to the ‘Corporate
governance’ section of the Directors’ Report for further details. As SPL is the principal sub-holding company of the Group, the SPL Board is accountable
for the governance arrangements we have in place in relation to assessing and managing climate-related risks and opportunities. For example, it
receives relevant updates from the ScottishPower CEO and the divisional CEOs, which include key climate issues of strategic significance (e.g.
ScottishPower’s Sustainable Development Strategy, our Science-Based Targets and TCFD). The SPL Board is also responsible for approving updates to the
SP GSS (including the adoption of the latest iteration of the Climate action and Environmental Policies), approving environmental risk insurance on an
annual basis, approving the SPL Annual Report and Accounts in which certain climate information is disclosed, and reviewing and approving the Group’s
non-financial information (such as progress towards reducing Scope 1, 2 and 3 GHG emissions). At each meeting, the SPL Board is presented with a Group
procurement summary which includes suppliers’ ESG compliance scores for the previous period’s high-value contracts. Scoring is based on, among other
things, compliance with environmental legislation including GHG management and climate risk management processes, providing the SPL Board insight
into how effectively parts of our supply chain manage climate risk.
In 2022, the SPL Board adopted the following updates to the SP GSS:
• Adopt the latest version of the Iberdrola Sustainable Development Policy and the latest suite of ScottishPower risk policies.
• Amend the terms of reference of the SPL ACC to expressly monitor sustainable development activity.
• A new ScottishPower Internal Protocol for the Incorporation of ESG considerations into decision-making by the SPL Board and those charged with
governance.
These updates, insofar as they directly relate to the Company, form part of the SP GSS as adopted and applied by the Company. Achievement of net
zero is integrated within the decision-making process at all levels under Iberdrola’s target to be net zero in Scopes 1, 2 and 3 before 2040. Directors of
our parent group, Iberdrola, have assumed ultimate responsibility for the fight against climate change, approving, supervising and reporting on the
climate action plan. ESG reporting including climate data is prepared and input by ScottishPower and submitted for Iberdrola Board approval on an
annual basis.
SP ACC
The SP ACC is an independent internal committee of the SPL Board with no executive powers. Refer to the ‘SP ACC’ section of the Directors’ report for
further details. In respect of providing oversight to the SPL Board of climate-related risks and opportunities, some of its functions include:
• Supervise the sustainable development activities of the Group and, particularly, whether its environmental and social practices conform to the
global strategy and policies of Iberdrola, and of the Group, and report on the same to the SPL Board.
• Ensure that the main environmental risks in accordance with the general monitoring and risk management policy, are identified, managed and
adequately reported.
• Promote a strategy in which risk is a key factor to be taken into account in all decisions and at all levels within ScottishPower.
ScottishPower Sustainable Development and Reputation Committee
The ScottishPower Sustainable Development and Reputation (“SDR”) Committee, chaired by the Head of Climate Change and Sustainability, is a non-
executive, cross-business working group set up to promote compliance with sustainable policies and guidelines, in accordance with its own terms of
reference. It is also responsible for overseeing the development and implementation of ScottishPower’s Sustainable Development Strategy which
contains the Group’s GHG emissions reduction strategy. SDR Committee membership consists of representatives from across ScottishPower, including
the Chief Compliance Officer, the Director of Internal Audit, the Director of the CEO’s Office, as well as representatives from Energy Networks,
Renewables and Energy Retail and Wholesale.
Strategic integration of ESG function
In 2019, Dr Sam Gardner was appointed to a newly created role as the Head of Climate Change and Sustainability. The role sits within the CEO Office and
was created to help us develop and implement initiatives that will help us play a leading role in tackling the climate crisis and contributing to the UN
SDGs. One purpose of the role is to provide a direct line of sight of ESG considerations to ensure environmental risks and opportunities (such as climate
change) inform key strategic decisions. The Head of Climate Change and Sustainability meets with the CEO regularly throughout the year and attends
the SPMC as required to discuss climate-related risks and opportunities. Monitoring and reporting of GHG reduction targets is undertaken by the Climate
Change and Sustainability team and is verified annually through our sustainability data management workflow tool Sygris.
31
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
ENVIRONMENT continued
Risk management
The SPL Board and senior management is strongly committed to, and engaged in, the management of ScottishPower’s risks including those related to
climate. ScottishPower adopted Iberdrola’s Three Lines Model as our internal control system (illustrated below), to ensure all significant risks are
adequately identified, measured, managed, controlled, and regularly reported to all relevant internal and external stakeholders. Our Three Lines Model
is based on an assurance system combined around three lines, providing a comprehensive view of how the different parts of the organisation interact in
an effective and coordinated manner, increasing the efficiency of the processes for management and internal control of the entity’s significant risks.
We review and approve acceptable levels of risk tolerance on an annual basis through risk policies and limits that establish the qualitative and
quantitative risk appetite at the Group level and at each of the divisions. Compliance with the approved risk policies, limits and indicators is monitored
periodically throughout the year along with various exposures, significant risks and threats.
Integration of climate risks into our Enterprise Risk Management (“ERM”) framework
As a Group principal risk, the identification, analysis and management of the risks and opportunities arising from climate change is integrated into our
established and mature ERM framework. Risks are identified and addressed through a multi-departmental and multi-level process coordinated by our
Risk Management department, involving significant collaboration between divisions and corporate functions.
The Key Risk Report (“KRR”) is a repository for our risks representing our ERM framework to assist in achievement of both our short and long-term
goals. Effective application of the KRR facilitates the ongoing informed decision-making required to meet our business objectives. Risk reporting is well
embedded within the business and climate change risks are identified and assessed as part of the KRR process and are considered in line and with the
same templates and standards as any other risk.
Each of the divisions and corporate functions compile their transition and physical climate change risks at least on a quarterly basis and submit to Risk
Management who review the initial assessment of each risk and the mitigation strategy. To assess each climate-related risk, information related to the
following is provided in each KRR template:
• Description – the specific climate change issue and how that causes the Group down-side risk along with the implications.
• Mitigation – the plan(s) to reduce the impact of this risk or remove it altogether.
• Owner – the owner accountable for managing the climate-related risk.
• Probability – the likelihood the risk crystalises.
• Short-term impact – an estimate of the financial impact in the next twelve months, if any.
• Long-term impact – an estimate of the financial impact beyond the next twelve months, if any.
• Reputation – consider if there is a direct reputational impact for the business.
• Evolution – whether the risk has increased, decreased or remains the same since the last quarter.
• Risk Factor – consider if the risk manifests itself as market, operational, business, credit or regulatory.
• Priority – climate-related risks are ranked high, medium or low in the context the specific division or corporate function.
The KRRs are then consolidated by Risk Management, who provide consistency checks, and report based on materiality twice a year at the SP ACC,
and quarterly at Iberdrola Group Risk and Supervision Committee and SPMC.
SPL Board
SP ACC
Energy Networks, Renewables, Energy Retail
and Wholesale, Corporate Functions
UK Internal Audit
independent assurance
First line roles:
divisional businesses
provision of
products/services to
client; managing risk
Second line roles:
monitoring and challenge
on risk-related matters
(e.g., Internal control,
Risk Management, UK
Compliance)
Third line roles:
independent and objective assurance and
advice on all issues related to the achievement
of objectives
External assurance providers
Key
Accounting,
reporting
Delegation, direction,
resources, oversight
Alignment, communication,
coordination collaboration
32
Scottish Power UK plc Annual Report and Accounts 2022
ENVIRONMENT continued
Group Strategic Report for the year ended 31 December 2022
Our KRR process is illustrated below:
• Given assurance main environmental risks are identified, managed and reported
• Reports to the SPL Board on the internal control and risk management systems
• Overall coordination
• Review assessment and mitigation strategy of risks
• Check consistency of submitted climate KRRs
• Consolidate and report based on materiality bi-annually to SP ACC and
quarterly to the SPMC and Iberdrola Risk and Supervision Committee
• Identify climate risks and opportunities
• Assign risk owner
• Assess and prioritise each climate risk
• Agree mitigation strategy considering any existing controls
Strategy
This section outlines our overall strategy and approach to the management of climate-related risks and opportunities together with an indication of
the principal transition and physical risks and opportunities. It then goes on to examine transition risks and opportunities and how different climate
scenarios would impact us. There follows an examination of physical risks and opportunities and how physical risks could evolve over time. The section
ends with a description of the mitigation, adaptation and resilience activities underway to manage transition and physical risks and opportunities.
Our strategy for effectively managing climate-related risks and opportunities is founded on a long history of proactive action. For the last several
decades, we have been a disruptor and innovator in the UK energy market. Our actions including spearheading the widespread adoption of onshore
and offshore wind generation, returning Scotland to a coal-free energy system with the closure of the Longannet and Cockenzie power stations and
becoming the first major UK energy firm to completely drop fossil fuels generation in favour of renewables, have all enabled us to reduce climate risk
and realise opportunities to create sustainable value. We are now also driving the accelerated adoption of low-carbon storage, green hydrogen and EV
charging technologies, supported by an increasingly flexible and smart electricity network.
Being an early mover in these areas has created an element of business and physical risk but has also enabled us to realise significant business
opportunities that otherwise would not have been open to us. As the impacts of climate change become ever more tangible, it is important that our
strategy for risk and opportunity management continues to evolve in order that we can continue to maintain a strong and competitive business in
the short, medium, and long-term.
Our approach to the management of climate-related risks and opportunities considers all of the relevant time horizons for our divisions. The policies
within the SP GSS guide our actions within the time horizons related to the UN SDGs (2030), compliance with ESG requirements (which are diverse and
continually evolving) and goals established by the Paris Agreement (2050). The strategies that we develop to operationalise the SP GSS therefore align
to these time horizons as well as other technology or location-specific horizons (such as the Scottish 2045 net zero target or UK regulatory timelines).
Given the key role that the energy industry must play in the low-carbon transition, and the resulting science-based 2040 net zero requirement for
companies such as ours, our group-wide strategic vision lays out our long-term proposition to 2040, with milestones at 2025 (short-term) and 2030
(medium-term). Strategies and investment plans are set in line with these milestones, whilst also taking into account asset lives (many assets installed
today will still be operational in 2040) and regulatory and planning timelines.
Our assessment and management of climate risk and opportunities considers risks over the short, medium, and long-term time horizons. Transition,
physical and other climate risks are managed using this process and mitigating actions carried out as required. Transition and physical risks and
opportunities are considered in the medium and long-term through a process of scenario analysis, with potential impacts indicated over the medium-
term (2030) horizon for transition risks and opportunities, and over the medium to long-term (2030 to 2059) for physical risks.
Our analysis in the short, medium, and long-term indicate that our business is in a strong position to respond to the potential effects of, and realise
the opportunities related to, climate change.
SP ACC
Risk Management
Divisions and corporate functions
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Scottish Power UK plc Annual Report and Accounts 2022
ENVIRONMENT continued
Group Strategic Report for the year ended 31 December 2022
Principal risks and opportunities
Climate change represents business, systemic and global risks, and opportunities over a range of time horizons. These can be categorised into three
broad groups:
TRANSITION PHYSICAL OTHER RISKS OR OPPORTUNITIES
Associated with the global decarbonisation
process, such as the evolution of:
• strategy;
• legislation;
• policy;
• regulation;
• markets and supply chains;
• technology;
• competition;
• financial;
• reputational developments;
• demand; and
• reporting requirements.
Stemming from possible material impacts
on facilities and the supply chain as a
result of the evolution of climate variables,
such as:
• heatwaves;
• drought and increased dust;
• rising sea levels and temperatures;
• rising flooding levels and increased
flooding re-occurrence;
• changes in weather patterns and
extreme weather events; and
• invasive species.
These may arise as a result of physical
and transition risks, including:
• those relating to deterioration in the
credit of counterparties (suppliers,
banks, others);
• social phenomena (humanitarian crises,
impacts on crops and fishing, refugee
crises, epidemics);
• greater competition for financial
resources; and
• greater drive for efficiency and
transparency.
Transition risks and opportunities
Our anticipation and management of transition risks and opportunities over the past decades has been central to cementing our position as a leader
in renewable energy and the fight against climate change. The following table outlines the transition risks and opportunities identified as the most
relevant to our products and markets, and the most likely to materialise, together with a description of our current approach and related strategic
impacts. Relevant timeframes have been identified (short-term, medium-term and long-term), however, all of these high priority risks and
opportunities have the potential to crystallise over all timeframes.
Risks and opportunities Approach and management Strategic impact
RISK
Change in the cost of raw materials, parts
and emission rights, customer demand and
supply chain uncertainty may impact our
ability to deliver net zero through network
development and renewable generation.
Relevant in short, medium, and long-
term.
• Expert unit in charge making forecasts
and preparing long-term paths with
consideration of decarbonisation plans.
• Supply chain monitoring and
engagement, particularly with new
suppliers and technologies.
• Upward pressure on costs due to the
macroeconomic environment is
proactively managed.
• Engagement with key industry
stakeholders such as Ofgem and
governments.
• Refer to ‘Group principal risks and
uncertainties’ section of the Strategic
Report for further details.
• Development and implementation of
strategies for hedging and supplier
base expansion.
MARKET
OPPORTUNITY
Economic decarbonisation requires an
increase in the electrification of heat and
transport through heat pumps and EVs
primarily.
Relevant in short, medium, and
long-term.
• Strategic partnership with WWF to
help accelerate the UK’s transition to
net zero, pursuing a programme of
policy advocacy to champion low-carbon
energy solutions and to call for ambitious
climate action.
• Establishment of smart solutions
department to facilitate the uptake of
low-carbon technologies.
• Designing and delivering an energy
system to facilitate and encourage the
growth of EVs and clean heating
solutions.
• Facilitating the decarbonisation of
hard-to-electrify sectors such as heavy
industry and transport, through the
development and application of green
hydrogen solutions.
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Scottish Power UK plc Annual Report and Accounts 2022
ENVIRONMENT continued
Group Strategic Report for the year ended 31 December 2022
Risks and opportunities Approach and management Strategic impact
RISKS
Changes to consenting or emissions
legislation.
Uncertainty as to the financing
framework and aid for the development
of renewable energies.
Relevant in short, medium, and
long-term.
• Risk associated with climate change is
considered in typical analysis of
regulatory risks and evaluated for each
investment.
• Engagement with all appropriate
stakeholders to ensure that long-term
regulatory stability and political
consensus is maintained and public
backing is secured for the necessary
investment in the UK energy system.
• Providing stakeholders with evidence
of the risks of ad hoc intervention in
markets.
• Refer to ‘Group principal risks and
uncertainties’ section of the Strategic
Report for further details.
• Strong corporate stakeholder relations
strategy.
REGULATORY
OPPORTUNITY
Economy-wide shift from fossil fuels
to renewables.
Relevant in short, medium, and
long-term.
• Increase capital spending in the UK,
with £6.7 billion to be spent between
2023 and 2025, including £3.3 billion
on electricity network investment and
nearly £3 billion on renewable
generation projects.
• Investing in renewable energy
generation, principally onshore and
offshore wind, solar and battery
storage, to address the climate
emergency and reduce the cost of
electricity generation.
Risks and opportunities Approach and management Strategic impact
RISK
Increase in the cost of capital for
investments in technologies or business
models that are deemed to be unrelated
in the fight against climate change.
Relevant in short, medium, and
long-term.
• ScottishPower’s business model
contributes to the decarbonisation of
the economy.
• We continually monitor the views of
investors and work to ensure our
business model remains aligned with
best practice in sustainability.
• Strategy and business model aligned
with the fight against climate change.
FINANCIAL
OPPORTUNITY
Advantages in terms of attracting financing
for companies with sustainable and resilient
business models.
Relevant in short, medium, and
long-term.
• Early engagement with TCFD
requirements.
• Sustainable development embedded
in business strategies.
• Strong focus on business adaptation
and resilience.
35
Scottish Power UK plc Annual Report and Accounts 2022
ENVIRONMENT continued
Group Strategic Report for the year ended 31December 2022
Risks and opportunities Approach and management Strategic impact
RISK
Uncertainty about technological
development. Innovation and anticipation
regarding the development and
implementation of new technology.
Relevant in short, medium, and
long-term.
• Established renewables technology is
mature and less exposed to cycles.
• Technical and performance analysis.
• Technological and prospective analysis.
• Influencing developments at industry
forums.
• Championing innovative technologies,
bringing down the costs of
decarbonisation and ensuring that no
communities are left behind on the
road to net zero.
TECHNOLOGICAL
OPPORTUNITY
Increasing importance of networks (in
terms of greater digitalisation, smart grids,
system flexibility) under electrification
scenarios – transition to DSO.
Relevant in short, medium, and
long-term.
• Undertaking scenario modelling of the
impact of low-carbon technologies.
• Considering technical and commercial
innovation projects.
• Engaging with key stakeholders and
owning a clear DSO vision.
• Investing in networks to make them
smarter and more resilient, and
creating a platform for the UK’s
sustainable electric future.
Risks and opportunities Approach and management Strategic impact
RISKS
Change in the behaviour and preferences
of stakeholders, with pressure on
unsustainable companies (risk of lawsuits).
Non-compliance with reporting
requirements.
Relevant in short, medium, and
long-term.
• Engagement with all appropriate
stakeholders.
• Development and delivery of credible
business decarbonisation.
• Expert teams responsible for
compliance with reporting requirements,
underpinned by Three Lines model.
• Building a sustainable development
strategy.
• Science-based decarbonisation
pathways.
• Strong corporate stakeholder relations
strategy.
REPUTATIONAL
OPPORTUNITIES
Improved energy efficiency and associated
benefits for consumers, and an improved
relationship with them.
Strengthened stakeholder relationships
for companies acting on climate change.
Relevant in short, medium, and
long-term.
• Sharing information with our customers
on the actions they can take to reduce
their usage.
• Delivering our ECO4 programme and
preparing for ECO+.
• Continue to engage with the UK
Government on the effective and timely
delivery of energy efficiency measures
to achieve UK consumption reduction
ambitions.
• Engagement with all appropriate
stakeholders.
• Supporting and guiding domestic and
business customers through their
journey to help them decarbonise and
be more efficient in their energy
consumption.
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Scottish Power UK plc Annual Report and Accounts 2022
ENVIRONMENT continued
Group Strategic Report for the year ended 31 December 2022
Transition scenario analysis
The resilience of our global group business model and strategy to transition risks, and our ability to realise opportunities, is assessed on an annual
basis. In 2022, we have carried out a UK-specific analysis that uses a range of scenarios selected to be the most relevant for our business whilst being
sufficiently varied to cover a range of relevant outcomes. Our choice of scenarios includes a business-as-usual scenario aligned to the UK’s 2050 net
zero target, a scenario that goes faster and a scenario which does not achieve net zero by 2050.
We have chosen to undertake this transition scenario analysis using the medium-term time horizon of 2030 and the analysis identifies both qualitative
and quantitative potential impacts under each scenario at this timepoint.
The analysis has been carried out in four steps, which align with the relevant TCFD Technical Supplement:
• analysis and selection of reference climate scenarios;
• selection of the key scenario parameters to be used in the analysis of each transition scenario;
• identification of the most relevant operational indicators for each ScottishPower subholding; and
• analysis of the impact of the two alternative scenarios with respect to the base case presented in the 2023-2025 outlook.
When selecting relevant scenarios, we reviewed the International Energy Agency scenarios and the UK-specific National Grid Future Energy Scenarios
(“FES”). We decided to use the FES as they provide a UK-specific view and because we use these in the development of our investment plans. We used
the following scenarios, which take account of both Intergovernmental Panel on Climate Change (“IPCC”) assessments and the Paris Agreement
climate targets:
• Consumer transformation – This scenario is characterised by electrified heating, consumer behaviour change, energy efficiency and demand side
flexibility and is aligned with the UK’s 2050 net zero target. The ScottishPower outlook for 2023-2025 is based on this central scenario and it is
therefore our baseline scenario.
• Leading the way – This scenario goes beyond consumer transformation and assumes the fastest credible decarbonisation, significant lifestyle
change, and a mixture of hydrogen and electrification for heating. This scenario is also aligned with the UK’s 2050 net zero target.
• Falling short – This scenario falls behind the other two scenarios and does not achieve the UK’s 2050 net zero goal. It is characterised by the slowest
credible decarbonisation, minimal behaviour changes, and decarbonisation in power and transport but not heat.
When assessing impacts related to its distribution business, our networks business used geographically granular Distribution Future Energy Scenarios
(DFES), based on FES, which also took into account of UK Climate Change Committee Sixth Carbon Budget Scenarios and drew on extensive engagement
with stakeholders including devolved governments in Scotland and Wales. The baseline planning scenario for the network distribution licences was
therefore broadly consistent with the FES Consumer Transformation scenario but with regional adjustments due to geography and network
characteristics.
We considered key parameters related to these scenarios:
• final electricity demand;
• installed renewable capacity across different technologies;
• renewable share of generation mix;
• total domestic electricity generation;
• annual natural gas demand for home heating;
• investment in networks; and
• installed gas capacity.
We then identified the operational indicators most sensitive to potential changes in the climate scenarios:
• Energy Networks – EV and heat pump uptake (millions), Generation (GW)
• Renewables – Installed renewable capacity (GW)
• Energy Retail and Wholesale – Electricity and gas demand (terawatt hour (“TWh”))
The following tables lay out the potential impacts under the two alternative scenarios for each division in 2030. There is no impact analysis for
consumer transformation as this is our base case and therefore would have no impact upon our metrics. Impacts are indicated in 2030 as a single
point in time rather than cumulative or average over the period from 2023 to 2030 in order to facilitate comparability.
The operational and financial impacts of climate identified by our scenario analysis are nominal, with the exception of Energy Networks, as
explained further below. Under the falling short scenario, Energy Networks would experience low operational and financial downsides. Under the
leading the way scenario, Energy Networks would see a medium operational upside and low financial upside.
• Energy Networks – Under the falling short scenario, a slower transition would mean delay to a number of high-cost major transmission projects
coupled with reduced investment in low-carbon technologies, leading to a lower in-year earnings before interest, tax, depreciation, and
amortisation (“EBITDA”) in 2030. Under the leading the way scenario, there is limited additional need for high-cost transmission interventions
beyond those already planned in the baseline scenario as the generation export requirements to the wider GB transmission system are broadly
similar in both scenarios. The related transmission investment, which represents a significant proportion of Energy Networks’ EBITDA, therefore
remains similar to the baseline plan. The majority of increased expenditure is associated with the distribution networks to accommodate EVs
and heat pumps.
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Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
• Renewables – While UK-wide the falling short and leading the way scenarios both indicate material changes in overall renewable generation
capacity, the impact of these changes upon our Renewables division would be minimal in 2030, due to the scale and maturity of our projects
and the timelines related to them. However, there would potentially be impacts beyond 2030 in terms of increases or decreases to our long-term
renewables pipeline. Offshore projects can take up to a decade to plan and construct and so, barring any significant changes to planning policy,
our pipeline to 2030 would remain stable under either scenario. Whilst onshore projects typically have shorter planning and construction
timelines and, would therefore be able to respond more quickly to increased UK targets or policy changes, they represent a small proportion of
our renewable capacity and expenditure, and therefore the impact of the scenarios would be minimal in terms of our overall portfolio and
financial impact.
• Energy Retail and Wholesale – Both the falling short and leading the way scenarios indicate minimal impact for our Energy Retail and Wholesale
division, assuming no significant change in customer numbers. Under the falling short scenario, more customers will continue to use gas as their
source of primary heating, increasing the forecasted gas volumes and decreasing electricity volumes. Under the leading the way scenario, a faster
transition will see more customers move to heat pumps, solar panels and other technologies, decreasing the use of natural gas but increasing
electricity use for heat, and representing an opportunity in terms of a growing market for our smart solutions.
ENVIRONMENT continued
2030 impact
Business Impact Type
Energy Networks Million/GW
Renewables GW
Energy Retail TWh
and Wholesale
EBITDA 2030 impact
Business Impact Type
Energy Networks EBITDA 2030
Renewables EBITDA 2030
Energy Retail EBITDA 2030
and Wholesale
Not
Significant
Low
Medium
High
Falling short scenario
Not
Significant
Low
Medium
High
Leading the way scenario
Not
Significant
£m
<100
£m
100-300
£m
>300
Falling short scenario
Not
Significant
£m
<100
£m
100-300
£m
> 300
Leading the way scenario
Positive impact
No significant impact
Negative impact
Key
38
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
ENVIRONMENT continued
Risks Approach and management
Heatwaves / fires
• Greater technical losses; stronger and more frequent peak loads
resulting in outages.
• Infrastructure damage due to the greater risk of fires; reduced
efficiency.
Relevant in short, medium, and long-term.
• Climatic studies carried out during project planning to identify
potential future production uncertainties.
• Enhanced design criteria.
• Application of new materials that can withstand higher
temperatures.
• Design of overhead power lines for operation under conditions
stricter than those mandated by regulations.
• Installation of high efficiency photovoltaic modules.
• Installation or upgrade of high efficiency cooling, detection and
warning, and firefighting systems.
ACUTE
Cold snaps
• Higher demand.
• Additional volatility in trading market.
• Damage and outages / ice and snow accretion.
• Reduced production / performance losses.
Relevant in short, medium, and long-term.
• Effective trading strategies.
• Dynamic forecasting and monitoring of actual consumption.
• Burial of power lines.
• Enhanced prediction, detection and warning systems.
• Improved emergency plans.
Extreme precipitation (flooding and/or landslides)
• Possible physical damage to infrastructure, e.g. electrical cabling.
• Sediment deposition and damage to infrastructure.
Relevant in short, medium, and long-term.
• Analysis of flood risk and vulnerability to extreme events
mentioned in the Environmental Impact Assessments.
• Flood mitigation asset upgrades.
• Burial of power lines.
• Enhanced prediction, detection and warning systems.
• Auto-protection plans; flood management emergency plans.
Storms and high winds
• Damage to infrastructure such as overhead lines caused by
falling trees.
• Unable to access certain sites during storms.
Relevant in short, medium, and long-term.
• Vegetation management.
• Power line automation.
• Enhanced prediction, detection and warning systems.
• Specific location and siting studies.
• Installation of more robust technologies as they become
available.
Physical risks and opportunities
ScottishPower monitors and manages physical risks using climate science and applies the learning to procedures, with a focus on planning, execution,
control, and continual improvement. Physical risks are specific to each division or site, gradual, associated with each technology, and occur over
relatively long periods. The following table outlines the acute and chronic physical risks and opportunities identified as the most relevant to our
products and markets, together with a description of our current approach to managing them.
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Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
ENVIRONMENT continued
Risks Approach and management
Average temperature variations
• Greater technical losses and less flexibility.
• Reduced solar panel efficiency / variability of solar resource.
• Variability of wind resources.
Relevant in long-term.
• Application of new materials that can withstand high
temperatures.
• Design of overhead power lines for operation under conditions
stricter than mandated by regulations.
• Installation of high-efficiency photovoltaic modules.
• Geographic diversification.
• Consideration of climate variability in investment planning.
CHRONIC
Sea level rise
• Potential effects on substations due to risk of flooding.
• Damage to equipment and infrastructure.
Relevant in long-term.
• Specific analysis of the flood risk of substations.
• Flood protection structures.
• Monitoring and control.
• Greater digitalisation and automation.
• Minimisation of response times.
• Reliable and resilient electrical power supply.
• Contributions to local communities.
• Innovation, research and development for new technology and tools.
• More resilient designs and equipment.
• Minimisation of environmental impact.
• Support for start-ups.
• Increased development of renewables and networks.
• Investment in storage technology.
• Seasonal climate trends that increase overall demand for electricity.
• Acceleration of decarbonisation of the industry, contributing to reduction in the need for adjustment.
OPPORTUNITIES
Physical scenario analysis
Physical risks are analysed annually using relevant climate projections. The 2022 assessment was carried out in line with the requirements of the EU
Taxonomy for sustainable activities. This analysis uses the most recent and relevant projections and takes ScottishPower’s existing and planned physical
assets into account. We have undertaken this analysis using average projections from 2030 to 2059 in line with the following three-stage process:
• Sensitivity screening – screening assets by technology group to identify which physical climatic risks may affect their performance throughout
expected asset lives.
• Impact analysis – where an asset is identified as being sensitive to a climatic risk, assessing its exposure to these risks and potential impacts under
relevant climate projections and locations.
• Adaptation measures – an assessment of adaptation measures already in place, future adaptive capacity and the remaining level of threat
requiring additional measures.
The following sources were used for historical averages, today’s baseline and future projections:
• UK climate projections – Wind speed, maximum and minimum air temperature, precipitation rate and amount of new snow on the ground.
• Third UK Climate Change Risk Assessment – Relative sea level rise and change in intense rainfall.
• Copernicus – Average danger over fire season, change in the duration of heatwaves and flood recurrence.
This impact analysis identified that sensitivities largely do not crystallise into potential future impacts under current projections, however, the evolution
of acute risks such as heatwaves, flooding and changes in intense rainfall could lead to some impacts without the implementation of relevant
adaptation measures. The following diagram indicates potential future impacts by risk, technology and location. Technologies and locations marked
green indicate no expected impact under the climate scenarios. Those marked amber indicate areas where there is low expected impact under the
climate scenarios. Our adaptation actions seek to mitigate these potential impacts. Areas in red would indicate more significant potential impacts
requiring more significant adaptation actions.
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Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
Risk mitigation, adaptation and resilience
Transition
ScottishPower’s current positioning as a result of our investment focus on grids and renewable energy puts us in a favourable position for facing
transition risks. We believe that the opportunities stemming from the decarbonisation of the global economy (growth in renewables, investments in
integrated smart grids, electrification of transport, green energy, etc.) outweigh the risks.
Our overarching risk management mechanisms and mitigating actions relating to the transition include:
• A strong business model with financial capacity to deal with change.
• Integration of climate change in management and corporate governance activities.
• Early action to transform the business model to adapt to climate change, allowing it to minimise transition risks and take advantage of the related
opportunities.
• Management of risks deriving from climate change embedded in business processes, such as emergency and business continuity plans.
• Consideration of climate change in investment decision-making.
• Regulatory and insurance coverage.
• Diversity, including geography, technology and age of assets.
• Proactive engagement, partnership and dialogue on adaptation and climate science to deliver cost-efficient resilience solutions.
• Strong innovation focus.
Physical
Based on the impacts noted above (which take account of the current uncertainty associated with climate projections) and the existing mitigating
factors, it is expected that the physical risks of climate change may not have a material, permanent impact on the consolidated figures of the Group,
which is expected to be resilient.
The generally low risk of impacts is due in large part to the robustness of existing concept, location, design, planning and operation specifications,
which aim to anticipate and prepare for changing climate conditions. Progressive renewal and evolution of assets enables adaptation to medium-to-
long-term impacts. Specifications for new equipment take account of future weather scenarios and technical improvements to extract greater lifetime
value from new projects.
Where potential future impacts are identified, adaptation plans are developed and delivered, including:
• Temperature related events
• Multi-year on-site and historical studies of climate parameters are made during project planning and considered in the selection and evolution
of the project.
• Location-specific studies assess the uncertainty of production under potential climate variations and working hypotheses are updated
continuously.
• Design criteria are optimised to improve efficiency and durability under evolving climatic conditions and temperature ranges.
• Operations and maintenance and risk prevention policies consider maximum operating temperatures.
• Early warning systems forecast meteorological phenomena including increasing temperatures, enabling advance notice for resilience measures
to be deployed.
ENVIRONMENT continued
41
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
ENVIRONMENT continued
• Flood recurrence and change in intense rainfall
• Design criteria are optimised for resilience.
• Secondary protective measures are deployed.
• Liaison with external planning and response agencies.
• Flood mitigation programmes are delivered, taking account of network climate adaptation reporting and climate resilience strategy as well as
site-specific risk assessments.
Metrics and targets
The realisation of climate-related opportunities and the management of climate-related risks is central to our business strategy and model and is
therefore embedded in our business targets. These targets show the direction of the future operations of the Group and are measured by a suite of
relevant metrics. Details of these targets and metrics and our progress against them is featured throughout this report. The following table summarises
the key targets and related metrics including timeframes where possible. It links these to the risks and impacts identified in ‘Strategy’ section and
provides references to where target performance is discussed throughout this report.
Target Metric Related risks and opportunities (T = transition,
P = physical, R = risk, O = opportunity)
Deliver 6 GW onshore
renewables pipeline
(includes wind and solar)
GW onshore
renewables
TR – Changes to consenting or emissions legislation
TR – Uncertainty as to financing and aid for renewable
development
TO – Transfer of energy from fossil fuels to renewables
TO – More attractive financing for companies with
sustainable and resilient business models
TO – Strengthened stakeholder relationships for
companies acting on climate change
PR – Infrastructure damage due to increased fire risk
PR – Reduced production or performance
PR – unable to access certain sites during storms
Further information
‘Renewables operating
review’ section of the
Strategic Report
Deliver RIIO-T2 and RIIO-
ED2 commitments on
network reliability and
availability and network
resilience by 2026 and
2028 respectively
% Reliability
Customer
interruptions
Customer
minutes lost
TR – Increase to cost of capital for businesses not
delivering on climate change
TO – More attractive financing for companies with
sustainable and resilient business models
TO – Increased electrification of heat and transport
TO – Transfer of energy from fossil fuels to renewables
TO – Increasing importance of networks in terms of
digitalisation, smart grids and system flexibility –
DSO transition
TO – Strengthened stakeholder relationships for
companies acting on climate change
PR – Greater technical losses, stronger and more frequent
peak loads resulting in outages
PR – Infrastructure damage due to increased acute events
PR – Higher demand due to cold snaps
PR – Reduced performance or efficiency
PR – Unable to access certain sites during storms
‘Energy Networks 2022
performance’ section of
the Strategic Report
Deliver >10 GW offshore
renewables pipeline
Deliver our ECO4
obligations by 2026
Properties
treated
TO – Improved energy efficiency and associated benefits
for consumers, and an improved relationship with
them
TO – Strengthened stakeholder relationships for
companies acting on climate change
‘Energy customers
– Energy Retail and
Wholesale’ section of
the Strategic Report
By value, 80% of purchases
awarded to sustainable
suppliers in 2023
% of total
purchase value
TR – Higher cost of raw materials
TR – Supply chain uncertainty
‘Suppliers and contractors’
section of the Strategic
Report
GW offshore
renewables
42
Scottish Power UK plc Annual Report and Accounts 2022
Group Strategic Report for the year ended 31 December 2022
Target Metric Related risks and opportunities (T = transition,
P = physical, R = risk, O = opportunity)
Further information
Reduce absolute
Scope 1, 2 and 3 GHG
emissions by 64% by
2030 from a 2019
base year
GHG inventory,
tCO
2
e*
TO – More attractive financing for companies with
sustainable and resilient business models
TO – Strengthened stakeholder relationships for
companies acting on climate change
‘Greenhouse gases’
section of the Strategic
Report
Reduce GHG emissions
from use of sold
products by 28% by
2030 from a 2019
base year
GHG inventory,
tCO
2
e
TO – Increased electrification of heat and transport
TO – Improved energy efficiency and associated benefits
for consumers, and an improved relationship with
them
TR – Uncertainty about development and implementation
of new technologies
‘Our activities – Energy
Retail and Wholesale’
section of the Strategic
Report.
ENVIRONMENT continued
Deliver 500 MW green
hydrogen capacity by
2030
MW of green
hydrogen
capacity
TO – Increased electrification of heat and transport
TR – Uncertainty about development and implementation
of new technologies
‘Energy Retail and
Wholesale operating
review’ section of the
Strategic Report
Greenhouse gases
Iberdrola has made a strong commitment to decarbonisation, setting a strategic goal to become net zero in Scopes 1, 2 and 3 before 2040. As an
additional contribution to both the climate and biodiversity crises, Iberdrola will plant 20 million trees by 2030 (eight million trees by 2025). This
commitment to a net zero path is central to Iberdrola’s sustainable business strategy and aligns with the UN SDGs.
In 2022, ScottishPower set a science-based target, complementing the targets set by Iberdrola. The target commits ScottishPower to reduce absolute
Scope 1, 2, and 3 GHG emissions from fuel and energy related activities and use of sold products by 64% by 2030 from a 2019 base year. This includes
a Scope 1 and 2 absolute reduction target of 47% by 2030 from a 2019 base year, which is consistent with reductions required to keep global warming
to 1.5°C, a Scope 3 absolute reduction in category 3 emissions from all sold electricity of 100% from a 2019 base year and a scope 3 absolute reduction
in GHG emissions from use of sold products of 28% over the same timeframe. Much work is already underway on our GHG reduction journey,
supported by an implementation plan and new reporting and delivery structures across ScottishPower.
Inventory
Overall, we have seen a 17% reduction in GHG emissions in 2022 compared to 2021 and a 23% reduction since our 2019 baseline year. The table and
the accompanying footnotes below, presents the value chain GHG emissions of the ScottishPower Limited Group for 2022.
* tonnes of carbon dioxide equivalent
43
Scottish Power UK plc Annual Report and Accounts 2022
tCO
2
e tCO
2
etCO
2
e
Notes kWh (Note (a)) kWh (Note (a)) (Notes (a),(b))
Scope 1 Combustion of natural gas* (c),(d) 38,576,895 7,042 33,621,364 6,158 5,406
Combustion of fuel for transport*
(c),(d) 62,542,855 15,589 64,397,445 16,171 8,011
Combustion of fuel for generators*
(c),(d) 10,744,011 2,483 1,326,708 343 220
Fugitive emissions (SF
6
, CH
4
**
and refrigerants) (c),(d) – 14,236 – 18,456 21,264
Total Scope 1 111,863,761 39,350 99,345,517 41,128 34,901
Scope 2 Purchased electricity for own use – location-based*
(c),(d),(e),(i) 63,818,654 12,341 83,373,667 17,702 19,624
Purchased electricity for own use – market-based
(c),(d),(e),(i) 63,818,654 6,948 83,373,667 10,199 20,534
Network losses – gross
(c),(d),(f),(h) 2,907,000,000 562,156 3,032,000,000 643,785 824,300
Network losses – net (c),(d),(f),(g),(h) 2,193,265,823 424,134 2,374,951,070 513,890 N/A
Total scope 2 location-based 2,970,818,654 574,497 3,115,373,667 661,487 843,924
Total scope 2 market-based 2,970,818,654 569,104 3,115,373,667 653,984 844,834
Scope 3 Business travel – vehicles (employee-owned and leased)*
(d),(j) 7,698,122 1,914 3,528,604 1,533
Business travel – other (rail and flights)
(d),(j) – 700 – 19
5,847
Emissions associated with the supply chain
(d),(h),(j),(k),(l) – 589,000 – 444,969 983,352
Fuel and energy-related activities (including
(d),(h),(j),(k),(m) – 795,654 – 981,923 815,308
product related upstream emissions)
Waste generated in operations
(d),(h),(j),(k) – 1,511 – 705 6,599
Employee commuting
(d),(h),(j),(k),(n) 26,891,477 6,745 26,643,367 6,798 2,743
Sale of electricity to end users
(d),(j) 17,083,801,000 3,827,559 17,897,605,000 4,782,371 5,181,525
Sale of gas to end users
(d),(j) 21,115,322,000 3,854,390 25,844,634,000 4,733,703 4,749,765
Total Scope 3 38,233,712,599 9,077,473 43,772,410,971 10,952,021 11,745,139
Total location-based 41,316,395,014 9,691,320 46,987,130,155 11,654,636 12,623,964
Total market-based 41,316,395,014 9,685,927 46,987,130,155 11,647,133 12,624,874
2022
2021
* Mandatory disclosures required by The Companies (Directors’ Report) and Limited Liability Partnerships (Energy and Carbon Report) Regulations 2018. The remaining
information is disclosed on a voluntary basis
** SF
6
– sulphur hexafluoride. CH
4
– Methane.
(a) tCO
2
e is a metric used to compare the emissions from various GHGs on the basis of their global-warming potential (“GWP”) in comparison to the GWP of carbon dioxide
(“CO
2
”). The main GHG are CO
2
, CH
4
, nitrous oxide and fluorinated gases.
(b) Baseline value chain footprint related to our Science Based Target.
(c) We use the GHG Protocol Corporate Reporting Standard and account for Scope 1 and 2 emissions from operations over which we have control, or the relevant proportion
for jointly controlled arrangements.
(d) Data was calculated using relevant Department for Environment, Food & Rural Affairs (“Defra”) conversion factors, with the exception of Fugitive Emissions, which were
calculated using IPCC Assessment Report 5 emissions factors.
(e) Electricity consumption related to ScottishPower owned EVs is accounted for in ‘Purchased electricity’.
(f) All data reported is based on January to December except for losses data, which is based on figures provided on a regulatory year basis (1April to 31 March).
(g) Scope 2 losses emissions net of our own green generation are presented for information.
(h) Estimated
(i) Scope 2 emissions are presented as both location-based (based on the GB-wide Defra conversion factors) and market-based (taking account of the impact of moving
our own electricity use to a green tariff).
(j) We use the GHG Protocol Corporate Value Chain (Scope 3) Standard for calculating Scope 3 emissions.
(k) Emissions categories reported for the first time this year. Footprint covers full value chain with the exception of emissions related to investments (equivalent to 12,651
tCO
2
e in 2019), which will be included in future years as quantification matures.
(l) 2019 calculation of supply chain emissions used spend multiplied by relevant environmentally extended input-output factors. 2021 and 2022 supply chain emissions
were calculated from an average of the actual emissions of our suppliers.
(m) This category includes upstream emissions (product, fleet, own gas and other fuels), well-to-tank emissions and transmission and distribution related emissions.
(n) Our process for estimating commuting emissions has been updated to include staff survey data for 2021 and 2022.
ENVIRONMENT continued
Group Strategic Report for the year ended 31 December 2022
2019
44
Scottish Power UK plc Annual Report and Accounts 2022
Scope 1 covers direct emissions from owned or controlled sources. In 2022, Scope 1 emissions represented 0.4% of total emissions reported. Overall,
Scope 1 emissions decreased by 4% between 2021 and 2022, largely driven by reductions in fugitive emissions. However, Scope 1 emissions in 2022
were 13% higher than in our 2019 baseline year, due to increases in fleet and generator emissions related to a ramp up in capital programme delivery
and natural gas emissions related to the increased use of our Hatfield gas storage facility.
Scope 2 covers indirect emissions from generation of purchased electricity. In 2022, Scope 2 emissions represented 5.9% of total emissions reported.
Overall, Scope 2 emissions have decreased by 13% between 2021 and 2022 and 33% since 2019. This has largely been driven by a reduction in energy
lost from the network between generator and user, combined with lower GB grid GHG intensity.
Scope 3 represents all other indirect emissions that occur in our supply chain. In 2022, Scope 3 emissions represented 93.7% of total emissions
reported. Overall, Scope 3 emissions have decreased by 17% between 2021 and 2022 and 23% since 2019, largely driven by a decrease in the third-party
electricity and gas supplied.
The following factors provide carbon intensity metrics for both the electricity that we generate and the energy that we supply. These are calculated
both using the mandatory SECR emissions as required by entities in scope, as well as by using the full value chain emissions figures to provide a more
comprehensive view.
ENVIRONMENT continued
Group Strategic Report for the year ended 31 December 2022
Note
tCO
2
e/kWh tCO
2
e/kWh
Carbon Intensity of electricity generated (based on SECR-only data) (b) 0.00001 0.00001
Carbon Intensity of energy supplied (based on total Scope 1-3: location-based) 0.00025 0.00026
2021 (Note (a))
2022
(a) 2021 figures have been restated to show actual emissions. There has been no significant change to the generation intensity in relation to SECR-only figures, but moving
to reporting full value chain emissions has led to a minor change in energy supplied intensity.
(b) Presented in tonnes in line with SECR guidance.
Streamlined Energy and Carbon Reporting (“SECR”)
We are committed to producing meaningful climate disclosures in line with those required by The Companies (Directors’ Report) and Limited Liability
Partnerships (Energy and Carbon Report) Regulations 2018 (“the 2018 Regulations”). The tables above, relating to the Scottish Power Limited Group,
include the mandatory disclosures required by SECR, in addition to value chain GHG emissions which are disclosed on a voluntary basis. The information
required by the 2018 Regulations has been independently verified by Mabbett & Associates Ltd on a limited assurance basis.
Throughout 2022, we have carried out a range of energy efficiency initiative measures, including:
• Rollout of new efficient lighting systems at over 25 offices, depots and wind farms.
• Roof membrane and solar installations completed at seven sites.
• Over 60 additional dual EV chargers installed across the SP Estate at offices, depots, wind farms and substations and an additional 14 EVs added to
the commercial fleet.
• Successful pilot of Hydro-treated Vegetable Oil (“HVO”) for use in generators and implementation of relevant contracts.
• Implementation of additional environmental requirements in tender and contract specifications to encourage energy efficiency through our supply
chain.
• Installation of modern efficient heating, ventilation and air conditioning systems at our Bonnybridge and Dumfries depots, which will save an
estimated 72,459 kWh of energy annually.
• Selection of 15 transmission substation sites representing a selection of structural archetypes, ages, geographic locations and roof types, to undergo
energy monitoring to establish the scope of building energy efficiency refurbishments to be carried out on 48 substations by 2026.
• Continued delivery of a transmission losses reduction programme, including replacement of ageing equipment such as transformers, shunt and
series reactors and overhead lines with new lower-loss equipment.
Biodiversity
During 2022, ScottishPower adopted the new Iberdrola objective to have a net positive impact on biodiversity by 2030 and supported a global pilot of
a new biodiversity accounting methodology.
In the reporting year we had 27 facilities covering over 31,000 hectares (“ha”) and over 3,500 km of networks in Protected Areas and Areas of High
Biodiversity Value with 185 key species identified within our areas of operation.
During 2022, 45 programmes to monitor, protect and enhance biodiversity were started or ongoing and 31 were completed, including:
• Monitoring of birdlife and chiroptera.
• Monitoring of terrestrial and aquatic flora.
• Research and ecological studies.
• Protection of flora and vegetation management including the planting of over 500,000 trees.
• Partnerships, collaborative projects and awareness initiatives.
Energy Networks reviewed processes and developed their approach for the RIIO-T2 price control, following the biodiversity mitigation hierarchy. An
internal biodiversity working group was convened to lead the strategic implementation of biodiversity plans. This group identified the sites to be
considered for ‘Biodiversity No Net Loss’ and drove the piloting of tools and work with external parties to identify methodologies for baselining
biodiversity and natural capital to allow a better understanding of Energy Networks’ position.
Group Strategic Report for the year ended 31 December 2022
ENVIRONMENT continued
Energy Networks also worked with NatureScot through the Scottish Linear Infrastructure Group, as part of a collaboration to develop a standardised
Scottish biodiversity tool.
Renewables onshore completed a significant programme of works at Kilgallioch wind farm, including restoration of 36 ha of peatland and a three-year
programme of forestry restocking leading to the establishment of over 1 million broadleaf and commercial conifers. A ten-year bird monitoring
programme was completed at Lynemouth Windfarm, with results indicating that mitigation measures have been successful in deterring geese and
swans from using the wind farm.
Renewables offshore activities in 2022 centred around the EA1 and EA3 projects, including pond surveys to assess the presence of great crested newts,
arboricultural assessment of trees and hedgerows within or adjacent to cable routes, breeding bird transect and bird vantage point surveys, and reptile
surveys.
Circularity
In 2022, ScottishPower adopted the new Iberdrola circular economy model and goals, which includes actions on blade recycling, supply chain
engagement and low-carbon steel. In 2022, we achieved an overall 39% reduction in waste generated from 2021, and 90% diversion from landfill.
In 2022, Energy Networks carried out a gap analysis against the BS8001 Circular Economy Standard to create a circular economy action plan to target
activity. Delivery of the initial phases including framing and scoping, baselining material use, waste, and current circular practice, will be completed in 2023.
Idea generation and feasibility work commenced, with a focus on electrical assets. The resulting action plan outlines high level future activity to the
end of 2024, including building the business case for circularity, piloting and prototyping, delivery and continuous and transformational improvement.
During 2022, two floating bins which skim water for plastics and rubbish were installed to cut waste pollution in the sea and harbour at Lowestoft
thanks to our EA1 offshore wind farm. The two ‘seabins’ are among just 860 being used around the world and were provided by Renewables for
Associated British Ports (“ABP”) to support the drive to clean up oceans and seas. Picking up rubbish like plastic bottles and bags, cigarette ends and
crisp packets from the water’s surface, one seabin can catch up to one tonne of debris a year, including microplastics as small as 2 mm. Costing £4,000
each, we installed one seabin at our EA1 offshore wind farm pontoon, while the other was donated to ABP to help cut waste in the harbour.
SOCIAL IMPACT
At ScottishPower, we see our local communities as key stakeholders in our business. Engaging with them is essential in delivering our objectives and
underpins our core value of collaboration. We continually strive to be a trusted, respected, and an integrated part of the community, by operating with
integrity, transparency, and working closely within the community to build relationships. We aim to ensure we conduct our activities responsibly and
make a positive contribution to society.
Investing in the community
We have a long track record of supporting communities by sharing resources and skills of our employees.
We regularly contribute to community-based organisations and engage in activities to help address a range of wider issues in the communities where
we operate. This specific voluntary engagement with charitable organisations, or activities that extends beyond the Group’s core business is broadly
known as ‘Community investment’.
As part of the Iberdrola Group, ScottishPower uses the London Benchmarking Group Framework to evaluate our community investment activity. This
framework is used by leading businesses around the world, providing a comprehensive and consistent approach to measuring the real value and impact
of corporate community investment to both business and society. During 2022, we voluntarily contributed nearly £12.7 million (2021 £23.2 million) in
community support activity, through cash, time, in-kind support and management costs associated with running community programmes.
Community engagement and consultation
We have a strong culture of employee volunteering across the Group, and every employee is offered the opportunity to take one day’s paid leave each
year to volunteer. In 2022, 1,215 members of staff (2021 1,050 members) took part in volunteering activities organised by ScottishPower and
contributed nearly 8,800 working hours.
As part of the operation of our onshore wind farms, we support 36 community benefit funds; empowering communities spread across the UK to control
how this money is spent to best serve the needs of the local area. During 2022, Renewables gave more than £6.9 million (2021 £5.8 million) to local
communities neighbouring its wind farms, bringing the total provided to-date to over £52 million.
ScottishPower has a significant presence in many communities throughout the UK. We consult with communities across our operations, where
developments are planned, or where we are decommissioning assets. Key areas of community interaction include: the siting of new facilities such as
wind farms; the presence of transmission and distribution lines; decommissioning older plant; and routine maintenance work. We take a proactive
approach to providing landowners, stakeholders and our customers with accurate information, from pre-planning through to completion.
It is particularly important to us as a developer, owner and operator to ensure that those affected by our work are aware in advance of our activities.
Through the development of longstanding relationships with community groups, elected representatives, interest groups and individuals, we have
created a variety of channels allowing communities to have their say.
Our community consultation processes include representation at community meetings; presentations and forums such as in-person and virtual public
information days; information published on our website; and, through social media. Our facilities host visits from community groups, maintain visitor
centres and run Local Liaison Committees which provide a forum for discussion between ourselves and community representatives.
Scottish Power UK plc Annual Report and Accounts 2022
45
Group Strategic Report for the year ended 31 December 2022
SOCIAL IMPACT continued
As many of our assets are situated on land that we do not own, policies are in place to ensure that the safety and integrity of the plant is maintained,
while respecting the needs of the landowner, the local community and the general public. Energy Networks, and those working on its behalf, adhere
to a publicly available Land Code of Conduct which sets out guidance of commitment to grantors and has been prepared in consultation with key
stakeholders.
We work closely with the UK Government and devolved administrations to develop policy on community engagement and benefit, and to ensure that
it observes to all voluntary codes of good practice.
ScottishPower Foundation
The ScottishPower Foundation (“the Foundation”) was established in 2013 to reinforce our commitment to charitable work throughout the UK. It is a
registered Scottish charity (SC043862) and a company limited by guarantee (SC445116). The Foundation provides funding to registered charities for the
following purposes:
• the advancement of education;
• the advancement of environmental protection;
• the advancement of the arts, heritage, culture or science;
• the prevention or relief of poverty and the relief of those in need by reason of disability or other disadvantage; and
• the advancement of citizenship and community development.
Decisions to award funding are made by an experienced Board of Trustees who have a special interest in the above areas. The Foundation continued its
support for the Restoration Forth project for a second year. The project received the first grant to be awarded from the Foundation’s Marine Biodiversity
Fund when it launched in 2021 and will receive up to £600,000 over a three-year period. The project is managed by WWF in partnership with scientists,
charities and local community groups. Together they will design a blueprint to restore and sustainably manage seagrass and oyster habitats for a
thriving Firth of Forth on the East Coast of Scotland.
In 2022, the Foundation awarded funding of over £1.1 million to 19 registered charities to support their work in the UK. The Engineering Development
Trust and Edinburgh Science Foundation are both engaging young people on the topic of climate change through activities in and out of the classroom.
Whizz-Kidz is providing wheelchair skills training to young wheelchair users across the UK, increasing independence and mobility, and Deafblind UK has
been conducting research into an educational provision for young students with deaf blindness to ensure no one is left behind. The Ocean Conservation
Trust and Keep Britain Tidy are cleaning up our seas; one by restoring carbon-sequestering seagrass meadows using cutting edge science, and the other
by preventing fishing nets from being disposed of in the water. Coldharbour Mill Trust is working to preserve heritage crafts in Devon, while the National
Library of Scotland has been painstakingly digitising hundreds of hours of video and audio tapes to catalogue the nation’s history.
The annual ScottishPower Foundation awards were announced at an Awards Ceremony on 1 November 2022 and provided £40,000 of additional
funding to projects through five award categories including the Charity Champion Award, which gives special recognition to individuals working in the
charitable sector for personal dedication. Following a competitive application process for funding of projects, 19 applicants were shortlisted by the
Board of Trustees in November 2022 and are intended to be awarded funding for projects to be delivered in 2023 subject to budget and contract.
Energy Networks
Energy Networks has shaped its business around geographical districts, enabling them to be closer to the communities they serve and allowing
communities to have influence upon the delivery of projects in their area.
Supporting local communities to achieve net zero
Within the next ten years alone, we expect the number of EVs in our two distribution network areas to increase to over 1.5 million vehicles, and with
this, the requirement for EV charging will double the demand of electricity in domestic properties. We are working closely with our stakeholders to
ensure a joined-up approach that supports their individual needs and helps facilitate the significant impact on our networks. We are working with all
32 Scottish councils and 18 across England and Wales to support their decarbonisation plans. This year, we have hosted six workshops on EV charger
installation and offered training for all local authorities. We have completed EV optioneering for all local government bodies across our SPM licence area,
along with specific funding options and projects for the Welsh Government's EV rollout, targeting areas where the commercial market has not yet
delivered. We are a key enabler to the decarbonisation of heat, but the concurrent increases in heat pumps means demand will increase beyond existing
network limits. We are taking learnings from our innovative Heat-Up project to support the Scottish Government in producing a framework to support
network solutions to facilitate the uptake of heat technologies. In our SPM region, we are developing a decarbonisation pathway for Liverpool City
Region Combined Authority to support the region, including Chester, Cheshire West and Warrington.
Given the criticality of the climate emergency, we are helping our communities across England, Scotland and Wales to embrace their low energy
solutions in a way that is beneficial for local needs. Community energy is playing a crucial role in achieving net zero by increasing participation and
embedding behaviour change. Community energy organisations are a critical part of the future energy system and in ensuring a just transition. We are
leading the way in community energy through supporting the planning and development of key projects, aimed at supporting our local communities’
journey to net zero. We have established a number of partnership projects and collaborations with local community energy groups, building on work
in this area, gaining wider stakeholder insight and building this into our plans.
Community engagement – keeping our communities safe
We consistently deliver clear and useful information on electrical safety through safety campaigns, and attendance at events. We have reached over
100,000 individuals through our Powerwise website aimed at electrical safety for children over a five-year period. We have also reached over 94,900
children through Fixed Safety Education Centres as well as carrying out over 300 ‘Crucial Crew’ events where attendance has been upwards of 40,000
pupils. We participate in numerous regional agricultural shows. In addition, we support the National Farmers Union and National Forestry Industry
through regular meetings promoting: safety; awareness of our assets; recurring incidents; supported training and awareness sessions. We also promote
and circulate any ongoing safety campaigns they have in relation to electrical safety.
Scottish Power UK plc Annual Report and Accounts 2022
46
Group Strategic Report for the year ended 31 December 2022
SOCIAL IMPACT continued
Supporting the vulnerable in our communities
Ongoing engagement with stakeholders and people in vulnerable situations, complemented by a sophisticated data strategy, have led us to build a
comprehensive and accurate picture of our customers’ needs. These needs are complex, diverse and multi-dimensional; addressing them all requires
the involvement and support of many bodies and organisations across the private and public sectors. At the same time, as a regulated network,
everything we do is funded by our customers so it is essential that our efforts in tackling vulnerability focus on the areas where our customer base and
our expert stakeholders believe we can have the most impact. Over the years, we have worked closely with them to define our role in supporting
customers in vulnerable situations; for example, we have learned that our customers want us to support people in times of hardship but do not believe
it is our role to provide direct financial support.
Collaboration with customers and stakeholders led us to focus on the three following needs:
• Protect the mental and physical welfare of customers when a power cut occurs.
• Tackle the root causes and consequences of fuel poverty and access immediate help to deal with wider social issues.
• Access the benefits and opportunities of low-carbon technologies and navigate a changing energy system.
While our consumer vulnerability programme is focused on addressing these three core needs, we have taken new steps to ensure that our vulnerable
customers can access 360-degree support that truly makes a lasting impact on their wellbeing and their quality of life. Our Coalition of Partners model
gives us the means to directly connect those in need of extra help with tailored support from organisations with the expertise and resources necessary
to make a difference. This model complements our portfolio of support, allowing us to focus our efforts where we can be more effective while leaving
no stone unturned to support our vulnerable customers.
Renewables
As a responsible developer, Renewables maintains a clear focus on engaging with the communities around our existing sites and in our areas of growth.
We are committed to being a good neighbour throughout the development, construction and operation phases of our projects and to ensuring that
the benefits of our projects are realised in local areas through helping to create local employment and enabling improvements to local infrastructure
and services.
Local community engagement
Renewables continues to provide community benefit funds to those living near to our operational onshore wind farms. We believe that local people
are best placed to make decisions about the initiatives that will be of greatest value to them and empower them to make decisions about how to spend
funds.
Funds can be used for purposes of community facilities, skills and employment, community or local events, sport and recreation, environmental
improvements, youth and education and heritage. Moving forward, we are also encouraging communities to use their funding to focus on initiatives
that will help them to reduce the carbon they produce and become net zero, for example through the installation of solar panels on communal
buildings, purchase of EVs to provide support services or for shared community use and installation of EV charge points for the benefit of local
residents and to support tourism in rural areas.
Environment
Renewables spends over £1 million every year to adaptively manage and monitor around 10,000 hectares of land. This includes approximately 9,000
hectares of peatland restoration and 1,000 hectares of native woodland creation and management. This activity provides many benefits for a range of
associated species such as breeding waders, black grouse, hen harriers, merlin and golden eagles.
We also maintain a robust Environmental Management System (ISO 14001 accredited) to support the business in managing environmental risks
throughout the project lifecycle.
Whitelee Visitor Centre
Whitelee is the UK’s largest onshore wind farm hosting 215 turbines, generating 539 MW; enough to power 350,000 homes. Whitelee Windfarm also
has a visitor centre that has welcomed more than 885,000 people to date, providing an opportunity to see first-hand how local communities, the
natural environment and a hybrid power station can co-locate together.
The visitor centre at Whitelee is managed by Glasgow Science Centre and offers a free hands-on interactive exhibition, a café, cycle facilities, car
parking and EV charging points. There is a bus tour to explore the wind farm, learn more about the history and ecology of the site and get close to the
wind turbines. The visitors centre offers an extensive education programme, with free curriculum-based sessions from nursery to further education
and various free craft sessions for families during the school holidays. Part of the community benefit fund at Whitelee pays for Whitelee Countryside
Rangers who promote responsible access within the wind farm and host free events including guided woodland walks, pond searches, wildflower
apothecary and summer holiday clubs. Whitelee hosts an annual ‘Run the Blades’ running festival incorporating a 10 km, half marathon and 50 km
ultramarathon, as well as numerous smaller charity events such as sponsored dog walks and Duke of Edinburgh Award activities.
During COP26, the Whitelee visitors centre was a key hub for showcasing the Renewables story to date as well as sharing our future plans. Post-COP26,
the appetite to support the net zero movement and the role of renewables technology within this has continued and we have seen the visitors centre
continue to host a number of visits from UK and International delegates including UK and Scottish Government bodies.
Energy Retail and Wholesale
In 2021 we created a new department within smart solutions – Smart Cities. This team’s mission is to help decarbonise at a community level, working
mainly with local authorities but also with other community groups, such as housing associations. Smart Cities can reach consumers where a private
financial investment may be unachievable; through local authorities and community groups they can access low-carbon technologies. In addition, by
deploying at scale, we can reduce the price per solution.
Scottish Power UK plc Annual Report and Accounts 2022
47
Group Strategic Report for the year ended 31 December 2022
SOCIAL IMPACT continued
Energy Retail and Wholesale continued
In addition to supporting our customers, we also support the charity sector, particularly our longstanding relationship with Cancer Research UK. During
this difficult period for charities, customers on our ‘Help Beat Cancer’ tariffs continue to make a vital contribution to the incredible work that Cancer
Research UK does. We have raised over £35 million to date through a combination of sponsorship of events like Stand Up to Cancer, sales of our ‘Help
Beat Cancer’ tariffs, and fundraising activities.
We engage regularly with the key industry stakeholders such as Ofgem, Citizens Advice and Ombudsman Services, to keep them fully updated of our
community actions.
We are one of the remaining suppliers that have National Community Liaison Officers (“CLOs”). Our CLOs focus on supporting customers who have
concerns over their energy consumption or billing to ensure clear understanding. They also provide support for those struggling with their energy bills.
This is done in the customer’s home. Our CLOs also provide locational support to our business customers.
Our Hydrogen department is continually working with businesses across the UK to help support their strategic aims to decarbonise their operations. For
two years we have supported the Scottish Schools Hydrogen Challenge with the purpose of educating young people about the importance of green
hydrogen in tackling the climate emergency.
Scottish Power UK plc Annual Report and Accounts 2022
48
49
Scottish Power UK plc Annual Report and Accounts 2022
SECTION 172 STATEMENT
Group Strategic Report for the year ended 31 December 2022
Statement by the directors in performance of their statutory duties in accordance with
section 172 of the Companies Act 2006
The Companies (Miscellaneous) Reporting Regulations 2018 requires the directors of Scottish Power UK plc to give a statement which describes how
the directors have had regard to the matters set out in section 172(1) of the Companies Act 2006 when discharging their duty under that section.
The directors acknowledge and understand their duties and responsibilities, including that, under section 172 of the Companies Act 2006, a director
of a company must act in the way he or she considers, in good faith, would be most likely to promote the success of the company for the benefit of
its members as a whole, and in doing so have regard (amongst other matters) to:
(a) the likely consequences of any decision in the long-term;
(b) the interests of the company's employees;
(c) the need to foster the company's 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; and
(f) the need to act fairly as between members of the company.
The delivery of the strategy of the Group, of which the Company acts as the holding company, requires the Group to conduct business in a manner
benefitting customers through balancing cost and risk while delivering shareholder value and protecting the Group's performance and reputation by
prudently managing risks inherent in the business. In carrying out this strategy, the directors' duties under section 172 of the Companies Act 2006
have been considered.
The directors strongly believe that effective and meaningful engagement with stakeholders and employees is key to promoting the success of the
Company. The SPUK Board regularly reviews the operational performance and risk issues for the Group, and also to approve certain reserved matters
as defined under the terms of reference of the SPUK Board.
The SPUK Board fully recognises that effective and meaningful engagement with stakeholders is key to promoting the success of the Company.
The Company identifies and interacts with its stakeholders via its principal subsidiaries of the three divisional businesses operated by the Group during
the year, being Energy Networks, Renewables, and Energy Retail and Wholesale, which are owned by their respective Head of Business Sub-holding
companies: SPENH, SPREL, and SPRH, as summarised in the ‘Who we are’ sub-section of the Strategic Report, on page 1. In addition, please refer to the
‘Engaging with stakeholders’ section of the Strategic Report which sets out the SPUK Board’s oversight of the consideration given to the Company’s,
and its divisional businesses’, engagement with key stakeholders.
The directors strongly believe that effective and meaningful engagement with stakeholders is key to promoting the success of the Company. Details
and examples of engagement with the Company’s key stakeholders (both direct and indirect) who are considered by the SPUK Board in its decision-
making with respect to matters reserved to it are as follows:
• Customers: details of how the Group engages with its customers are explained in the ‘Energy customers’ sub-section of the Strategic Report, on
page 8. Whilst the Company does not have direct customers of its own, during the year, the SPUK Board received and considered the key service
performance indicators reported in the ‘Energy customers’ sub-section of the prior year’s Strategic Report approved and delivered by the SPUK Board.
• Employees: details of how the Group engages with its employees are set out in the ‘Employees’ sub-section of the Strategic Report, on page 5.
SPUK approved the adoption by the Company of the 2021 ScottishPower Modern Slavery Statement.
• Communities and the environment: details of how the Group engages with communities and considers the environment are set out in the
‘Community and environment’ sub-section of the Strategic Report, on page 11. During the year, the SPUK Board was briefed on the Company’s ESG
assessment rating system for suppliers which applies to the ScottishPower procurement contract awards process.
• Suppliers and contractors: details of how the Group engages with its suppliers are set out in the 'Suppliers and contractors' sub-section of the
Strategic Report, on page 11. During the year, the SPUK Board considered and approved key contract awards made by the Company.
• Government and regulators: details of how the Group engages with governments and regulators are set out in the ‘Government and regulators'
sub-section of the Strategic Report, on page 10. During the year, the SPUK Board received its principal update regarding the economic, regulatory,
and political implications of the retail and wholesale markets as reported in the ‘Government and regulators’ sub-section of the prior year’s Strategic
Report approved and delivered by the SPUK Board.
In addition, details of how the Company interacts with its shareholders is described in the introduction to the 'Engaging with stakeholders' section of
the Strategic Report on page 4.
The directors, both individually and together as a board, consider that the decisions taken during the year ended 31 December 2022 in discharging
the function of the SPUK Board were in conformance with their duty under section 172 of the Companies Act 2006.
The SPUK Board is assisted in considering key stakeholders as part of the decision-making process by including stakeholder considerations in board
papers as appropriate, and board papers are carefully reviewed and considered by all directors.
BY ORDER OF THE SPUK BOARD
Marion S Venman
Secretary
18 April 2023
50
Scottish Power UK plc Annual Report and Accounts 2022
Directors’ Report
The directors present their report and audited Accounts for the year ended 31 December 2022.
Information contained within the Strategic Report
The directors have chosen to disclose information on the following, required by the Companies Act 2006 to be included in the Directors’ Report,
within the Strategic Report, found on pages 1 to 49:
• information on financial risk management and policies;
• information regarding future developments of the Group;
• information on charitable donations;
• information in relation to innovation activities; and
• information on employee regulations and policies.
In addition, energy and carbon reporting disclosures, as required by entities in scope of the 2018 Regulations are included in within the Strategic Report
on pages 42 to 44.
Results and dividend
The net profit for the year attributable to the equity holders of the parent amounted to £487.0 million (2021 £54.5 million). A dividend of £715.0 million
was paid during the year (2021 £nil). Refer to Note 29 for further details.
Taxation
The Iberdrola Board has explicitly acknowledged its responsibility for tax policy and strategy in all of the companies that it controls. The Iberdrola Board
has approved a Corporate Tax Policy which forms part of the Corporate Governance System and sets out that board’s commitment to responsible tax
practices throughout the Iberdrola Group. The Corporate Tax Policy was initially approved by the Iberdrola Board in 2010 and is regularly updated.
The Group applies the Corporate Tax Policy as approved by the SPL Board and the ScottishPower Tax Strategy as approved by the SPL Board's Audit and
Compliance Committee which accords with the Corporate Tax Policy and, as required by UK law, is published at www.scottishpower.com (“the Corporate
website”) under ’About Us’/‘Company Reporting’.
We are a responsible tax payer and seek to be open, honest and transparent in dealings with the tax authorities and to comply with both the letter and
the spirit of tax laws set by the UK Government. We remit taxes due on a timely basis, and have a relationship with HMRC based on mutual trust and
cooperation. Payment of taxes is our principal contribution to sustaining public expenditure and one of our contributions to society.
Further details on taxes and other government obligations can be found in the Strategic Report on page 15.
CORPORATE GOVERNANCE
Statement regarding the corporate governance arrangements of the Group
As required by the Companies (Miscellaneous) Reporting Regulations 2018, the directors of the Company have set out a statement of the corporate
governance arrangements of the Company.
The ultimate parent of the Company is Iberdrola, S.A., which is listed on the Madrid stock exchange. The Company, which is wholly owned by SPL,
does not apply a corporate governance code on the basis that the SPL Board, in accordance with its terms of reference and the Policy for the Definition
and Coordination of the Iberdrola Group and Foundations of Corporate Organisation (“the Group Governance Framework”), has adopted its own rules
and principles which are based on widely recognised good governance recommendations. Those rules and principles that applied to the Company
and its group during 2022 are set out as follows:
The SPL Board's terms of reference and the Group Governance Framework are published on the Corporate website under ‘Corporate Governance’/
‘Governance and Sustainability System’/ ‘Corporate Governance’.
Corporate governance system
The Company is governed by the SPUK Board, which consists of directors who bring a broad range of skills and experience to the Company. The SPUK
Board is regulated in accordance with the Company's Articles of Association (adopted on 7 July 2016) which are registered at Companies House.
In discharging its responsibilities and in the exercise of its decision-making powers, and in accordance with the Company’s Articles of Association and
the SPUK Board’s terms of reference, the SPUK Board has, in accordance with the Group Governance Framework, adopted the ScottishPower corporate
governance system (also known as the SP GSS) which is approved by the SPL Board, and which applies to the Company and its group.
The ScottishPower corporate governance system includes the internal corporate rules (for example, the purpose and values of the Iberdrola Group,
the Code of Ethics, corporate policies and other internal codes and procedures) that make up the corporate governance system of the Iberdrola Group,
which the SPL Board, having reviewed the same, has expressly adopted as part of the SP GSS, as well as the specific rules and regulations required to
implement or supplement it.
In addition, the SPL Board routinely considers and takes into account those parts of the corporate governance system of the Iberdrola Group (of which
the Company is part) which may have direct or indirect application to ScottishPower. Furthermore, the SPL Board actively considers and adopts specific
policies and rules which apply to ScottishPower. Such policies and rules are in turn applied by the SPUK Board as part of the SP GSS as adopted by it.
The SP GSS is published online on the Corporate website under ‘Corporate Governance’/ ‘Governance and Sustainability System’.
51
Scottish Power UK plc Annual Report and Accounts 2022
Board composition
The directors who held office during the year were as follows:
Nicola Connelly Director
Marion S. Venman Director
Donald Wright Director
As at the date of this report, there have been no changes to the composition of the Board of the Company since year end. There is no separate
appointments committee within ScottishPower. Instead, appointment matters relevant to ScottishPower and the Company are dealt with in accordance
with an internal group procedure for approving proposed appointments or removals of directors at companies in which the Iberdrola Group holds an
interest, and reviewed by the Iberdrola, S.A. Appointments Committee (“IAC”). The IAC has a function to report on the process of selection of directors
and senior managers of the Iberdrola Group companies.
Purpose and values
The structure of the Company, and the Group, is set out in the ‘Who we are’ section of the Strategic Report. During 2022, the SPUK Board has taken
into account the purpose and values of the Iberdrola Group and the Code of Ethics which are published on the Corporate website under ‘Corporate
Governance’/‘Governance and Sustainability System’/‘Purpose’. These documents define and promote the purpose, values and culture of the
Company and the Group.
Director responsibilities
The directors are fully aware of their duties under the Companies Act 2006, including those as set out in section 172 of the same. One of the primary
responsibilities of the SPUK Board is to supervise the provision of common corporate services to the three Head of Business Sub-holding companies
of the Group, which the Company directly and wholly owns, in accordance at all times with the provisions of all applicable legislation and regulations.
The Head of Business Sub-holding companies have their own boards of directors which have the necessary autonomy to carry out the day-to-day
management and effective administration of their respective divisions, as well as responsibility for their ordinary control.
Further information on the administrative, management and supervisory bodies of the boards of the three Head of Business Sub-holding companies
are described in the section below.
Opportunity and risk
The delivery of ScottishPower’s strategy requires the Group to conduct business in a manner benefitting customers through balancing cost and risk
while delivering shareholder value and protecting our performance and reputation by prudently managing the risk inherent in the business.
To maintain this strategic direction, we develop and implement risk management policies and procedures and promote a robust control environment at
all levels of the organisation. Details of the applicable risk policies are published on the Corporate website under ‘Corporate Governance’/‘Governance
and Sustainability System’/‘Corporate Governance’.
During 2022, the governance structure was supported by the risk policies of ScottishPower. Our business risk assessment team and independent Group
risk management function supported the SPL Board in the execution of due diligence and risk management, as described in the ‘Group principal risks
and uncertainties’ section of the Strategic Report.
Remuneration
The directors of the Company are subject to an annual evaluation of their performance in respect of their executive responsibilities as part of the
performance management framework which is in place throughout ScottishPower.
There is no separate Remuneration Committee within ScottishPower. Instead, remuneration matters relevant to ScottishPower and the Company are
dealt in accordance with the aforementioned performance management framework and reviewed by the Iberdrola, S.A. Remuneration Committee
(“IRC”). The IRC has a function to report on the remuneration of directors and senior managers of the Iberdrola Group companies.
Stakeholders
The SPUK Board fully recognises that effective and meaningful engagement with stakeholders is key to promoting the success of the Company. The
details of our key stakeholders, why they are important to the Company, and how we engage with our stakeholders are an integral part of our strategic
goals which are described in the ‘Our strategy’ section in the Strategic Report.
The Group identifies and interacts with its stakeholders via its three business divisions. Please refer to the Energy Networks, Renewables, and Energy
Retail and Wholesale sections of the Strategic Report for further information on these business divisions’ respective engagement with their specific
stakeholders. In particular, refer to the ‘Engaging with stakeholders’ section of the Strategic Report which sets out the SPUK Board’s oversight of the
consideration given to the Company’s, and its group's, engagement with key stakeholders.
Directors’ Report
CORPORATE GOVERNANCE continued
52
Scottish Power UK plc Annual Report and Accounts 2022
Administrative, management and supervisory bodies
SPL Board
The SPL Board comprised the Chairman, Jose Ignacio Sánchez Galán, and nine other directors at 31 December 2022. Jose Ignacio Sánchez Galán is also
the Executive Chairman of Iberdrola.
The directors of the SPL Board were:
José Ignacio Sánchez Galán Chairman, internal, non-executive director
Lord Kerr of Kinlochard GCMG Vice-chairman, external, non-executive director (resigned as Vice-chairman and director 21 March 2022)
Professor Sir James McDonald Vice-chairman, external, non-executive director (appointed Vice-chairman 21 March 2022)
Keith Anderson CEO
Wendy Jacqueline Barnes External, non-executive director
Iñigo Fernández de Mesa Vargas External, non-executive director
Professor Dame Anne Glover External, non-executive director (appointed 21 March 2022)
Rt Hon. Claire O’Neill External, non-executive director (appointed 21 March 2022)
Daniel Alcaín López Internal, non-executive director
Gerardo Codes Calatrava Internal, non-executive director
José Sainz Armada Internal, non-executive director
Rt Hon. Claire O’Neill resigned on 17 January 2023.
Meetings of the SPL Board were held on six occasions during the year under review. Attendance by the directors was as follows:
José Ignacio Sánchez Galán Attended six meetings
Lord Kerr of Kinlochard GCMG Attended two meetings
Professor Sir James McDonald Attended six meetings
Keith Anderson Attended six meetings
Wendy Jacqueline Barnes Attended six meetings
Iñigo Fernández de Mesa Vargas Attended six meetings
Professor Dame Anne Glover Attended four meetings
Rt Hon. Claire O’Neill Attended four meetings
Daniel Alcaín López Attended six meetings
Gerardo Codes Calatrava Attended six meetings
José Sainz Armada Attended six meetings
Scottish Power Limited Audit and Compliance Committee (“SP ACC”)
The SP ACC, a permanent internal body, has an informative and consultative role, without executive functions, with powers of information, assessment
and presentation of proposals to the SPL Board within its scope of action, which is governed by the Articles of Association of the Company and by the
terms of reference of the SP ACC.
The SP ACC’s responsibilities include:
• monitoring the financial and non-financial reporting processes for ScottishPower;
• monitoring the effectiveness of ScottishPower’s internal control, internal audit, compliance and risk management systems;
• monitoring the statutory audit of the Annual Report and Accounts of ScottishPower; and
• monitoring the independence of the external auditor and recommending to the SPL Board the appointment or reappointment of the auditor and
the associated terms of engagement.
The SP ACC’s terms of reference are published on the Corporate website under ‘Corporate Governance’/‘Governance and Sustainability System’/
‘Corporate Governance’.
Membership and attendance
The SP ACC met five times during the year under review. The members of the SP ACC and their attendance record are shown below:
Professor Sir James McDonald, Chairman (Chairman, external, non-executive director) Resigned 20 March 2022 Attended one meeting
Iñigo Fernández de Mesa Vargas (Chairman, external, non-executive director) Appointed Charman 21 March 2022 Attended five meetings
Wendy Jacqueline Barnes (External, non-executive director) Appointed 21 March 2022 Attended four meetings
Rt Hon. Claire O’Neill (External, non-executive director) Appointed 21 March 2022 Attended three meetings
Daniel Alcaín López (Internal, non-executive director) Attended five meetings
Rt Hon. Claire O’Neill resigned on 17 January 2023.
Directors’ Report
CORPORATE GOVERNANCE continued
53
Scottish Power UK plc Annual Report and Accounts 2022
Directors’ Report
CORPORATE GOVERNANCE continued
Membership and attendance continued
In addition to the attendance set out above, the ScottishPower Control and Administration Director, Director of Internal Audit, the Compliance Director,
and the Risk Director normally attend, by invitation, all meetings of the SP ACC. Other members of senior management are also invited to attend as
appropriate. During the year under review, the external auditor attended (in part) four meetings of the SP ACC.
Matters considered by the SP ACC during 2022
The issues that the SP ACC specifically addressed are detailed in its report which is published on the Corporate website under ‘Corporate
Governance’/‘Board of Directors’.
Significant financial statement reporting issues
In preparing the Annual Report and Accounts, there are a number of areas requiring management to apply judgement or a high degree of estimation.
After discussion with management and the external auditor, the significant areas of judgement reviewed and considered by the SP ACC in relation to
the 2022 Annual Report and Accounts, and how these were addressed, are set out in the table below.
SIGNIFICANT FINANCIAL JUDGEMENT FOR
THE YEAR ENDED 31DECEMBER 2022
HOW THE SP ACC ADDRESSED THESE SIGNIFICANT
FINANCIAL JUDGEMENTS
Accounting for Group and parent company retirement benefit
obligations
The assumptions in relation to the cost to the Group of providing future
post-retirement benefits are set after consultation with qualified
actuaries and can have a material impact on the financial position of the
Group. The costs, assets and liabilities of the Group’s defined benefit
schemes are regularly reviewed. Advice is taken from independent
actuaries and other specialists within the Iberdrola Group on the IAS 19
valuation of the schemes including the complex assets. Further details
are provided in Notes 3F and 9 on pages 77 and 95 respectively.
The SP ACC were updated on the combined schemes’ valuation
particularly in relation to the schemes’ key assumptions and complexity
of level 3 asset valuations. Following this review, the SP ACC supported
this judgement.
Recognition of Energy Retail accrued (‘unbilled’) revenue
Revenue from energy sales to retail customers includes estimates of the
value of electricity and gas supplied between the most recent meter
reading and the period end. This is based on estimates and assumptions
in relation to the consumption and its valuation. Further details are
provided in Note 22(a)(iii) on page 123.
The SP ACC reviewed the estimation processes and assumptions
applied in determining the recognition of accrued (‘unbilled’) revenue
and were updated on the impact on the financial statements. Following
this review, the SP ACC supported this judgement.
Expected credit loss (“ECL”) on Energy Retail receivables
The recoverability of the Group’s billed energy receivables in the Energy
Retail division is a key area of estimation uncertainty given the risk of
customer default. The level of the Group’s aged debt is monitored with
the allowance for ECL being based on assumptions derived from estimated
future cash flows, the ageing profile of the debt, prior experience and an
assessment of the current economic environment. Further details are
provided in Note 3H1.2(d) on page 78 and Note 11(e)A3 on page 105.
The SP ACC considered the assumptions impacting the allowance for
ECL and related charges and the processes for debt collection and
calculating the ECL. In light of the current environment, there was a
particular focus on energy market disruption and the impact this had,
and will have in the future, in relation to the recoverability of retail
receivables. Following this review, the SP ACC supported this
judgement.
Retail energy onerous contracts
Retail energy contracts have been reviewed to consider if any are
onerous. In concluding this assessment, judgement has been applied to
determine the expected future economic benefits of the contracts, the
incremental costs and the expected customer life. Following the
amendment to IAS 37, which was applied by the Group from 1 January
2022, the assessment included an allocation of other costs that relate
directly to fulfilling a contract. Further details are included in Note 2B
on page 73 and Note 3L on page 81.
The SP ACC were updated on the changing market environment and
increases in energy costs that resulted in the requirement for an
onerous contract provision to be recognised at 1January 2022. The
SP ACC reviewed the assumptions in the calculation and supported
this judgement.
Accounting for derivative financial instruments associated with
hedging the East Anglia Three offshore wind farm
The Group has entered into derivatives to hedge transactions associated
with the East Anglia Three offshore wind farm. At the time of hedging, the
project had still to take the Final Investment Decision for the project to
proceed. Judgement was applied to assess the highly probable nature that
the project would proceed to allow hedge accounting to be applied in relation
to these derivatives. Further details are included in Note 3 on page 74.
The SP ACC was updated on the derivatives transacted and the
accounting applied to these derivatives. Following this review, the SP
ACC supported this judgement.
SIGNIFICANT FINANCIAL ESTIMATION UNCERTAINTY
FOR THE YEAR ENDED 31 DECEMBER 2022
HOW THE SP ACC ADDRESSED THESE SIGNIFICANT
FINANCIAL ESTIMATIONS
54
Scottish Power UK plc Annual Report and Accounts 2022
Directors’ Report
CORPORATE GOVERNANCE continued
ScottishPower Management Committee (“SPMC”)
The SPMC is a permanent internal body, which was established by the SPL Board to provide an informative and coordinating role for the activities of the
Group. In accordance with the corporate governance arrangements of the Group and the separation of regulated activities, the SPMC does not exercise
any executive function as a decision-making body. The SPMC meets weekly and receives regular information on the activities of the Group in order to
support the corporate functions and lines of business in understanding the local, legal, regulatory and market specifics in the UK and in order to assist
the ScottishPower CEO in the performance of his duties. The CEO defines the composition of the SPMC, having regard to the duties assigned thereto.
Those persons that the CEO deems appropriate may also attend its meetings as invitees, either regularly or at a specific meeting.
Boards of the Head of Business Sub-holding companies
The boards of directors of SPENH (“SPENH Board”), SPREL (“SPREL Board”) and SPRH (“SPRH Board”) are responsible for the effective management of the
Energy Networks, Renewables and Energy Retail and Wholesale business divisions respectively, in accordance with the strategy of ScottishPower. These
boards meet regularly and review strategy, operational performance and risk issues on behalf of the respective businesses.
SPENH Board
The SPENH Board comprised the Chair Elena León Muñoz and five other directors as at 31 December 2022. The directors, and their attendance at SPENH
Board meetings held during the period under review (five meetings), are shown below:
Elena León Muñoz (Chair, internal, non-executive director) Attended five meetings
Frank Mitchell (CEO) Attended three meetings (resigned 26 August 2022)
Vicky Kelsall (CEO) Attended two meetings (appointed 26 August 2022)
Professor Dame Anne Glover (External, non-executive director) Attended one meeting (resigned 20 March 2022)
Alison McGregor (External, non-executive director) Attended five meetings
José Ignacio Sánchez-Galán García-Tabernero Attended two meetings
(Internal, non-executive director) (resigned 20 June 2022 and re-appointed 21 December 2022)
Suzanne Fox (External, non-executive director) Attended five meetings (appointed 1 February 2022)
Mónica Grau Domene (Internal, non-executive director) Attended five meetings
Suzanne Fox resigned on 31January 2023. Rt Hon. Charles Hendry was appointed as an external, non-executive director on 31 January 2023.
The terms of reference of the SPENH Board together with rest of the Energy Networks Governance and Sustainability System approved by the SPENH Board,
are published on www.spenergynetworks.co.uk under ‘Corporate Governance’.
SPENH Audit and Compliance Committee (“SPENH ACC”)
The SPENH ACC undertakes the role and function of the SP ACC as they relate to the regulated Energy Networks division. The relationship between the
SP ACC and the SPENH ACC is governed in accordance with their respective terms of reference. The SPENH ACC's terms of reference are published at
www.spenergynetworks.co.uk under ‘Corporate Governance’.
The SPENH ACC met five times during the year under review. The members of the SPENH ACC and their attendance record are shown below:
Alison McGregor (Chair, external, non-executive director) Attended five meetings
Suzanne Fox (External, non-executive director) Attended four meetings (appointed 21 March 2022)
Professor Dame Anne Glover (External, non-executive director) Attended one meeting (resigned 20 March 2022)
Mónica Grau Domene (Internal, non-executive director) Attended five meetings
Suzanne Fox resigned on 31January 2023. Rt Hon. Charles Hendry was appointed as an external, non-executive director on 31 January 2023.
SPREL Board
The SPREL Board comprised the Chairman, Xabier Viteri Solaun, and six other directors at 31 December 2022. The directors and their attendance at
SPREL board meetings held during the period under review (five meetings) are shown below:
Xabier Viteri Solaun (Chairman, internal, non-executive director) Attended five meetings
Lindsay McQuade (CEO) Attended two meetings (resigned 10 June 2022)
Charles Jordan (CEO) Attended two meetings (appointed 18 July 2022)
Dr. Bridget McConnell (External, non-executive director) Attended three meetings (appointed 21 June 2022)
Nicola Connelly (Internal, non-executive director) Attended five meetings
Charles Langan (Internal, non-executive director) Attended five meetings
Álvaro Martínez Palacio (Internal, non-executive director) Attended five meetings
Marion Shepherd Venman (Internal, non-executive director) Attended five meetings
The terms of reference of the SPREL Board together with the rest of the Renewables Governance and Sustainability System approved by the SPREL Board,
are published on www.scottishpowerrenewables.com under ‘Corporate Governance’.
SIGNIFICANT FINANCIAL JUDGEMENT FOR
THE YEAR ENDED 31DECEMBER 2022
continued
HOW THE SP ACC ADDRESSED THESE SIGNIFICANT
FINANCIAL ESTIMATIONS
Accounting for decommissioning
Decommissioning costs are subject to a degree of uncertainty as they are
estimated at the reporting date and there is uncertainty in relation to the
timing of when the decommissioning costs will be incurred. The sources
of estimation relate to the value of costs at the reporting date and the
discount rate applied. Further details are provided in Notes 3K and 18 on
pages 81 and 119 respectively.
The SP ACC were updated on the valuation process and assumptions
in relation to decommissioning costs. Following this review, the SP ACC
supported these conclusions.
Directors’ Report
CORPORATE GOVERNANCE continued
Membership and attendance continued
SPRH Board
The SPRH Board comprised the Chairman, Aitor Moso Raigoso, and four other directors at 31 December 2022. The directors and their attendance at
SPRH Board meetings held during the period under review (five meetings) are shown below:
Aitor Moso Raigoso (Chairman, internal, non-executive, director) Attended five meetings
Andrew Ward (CEO) Attended five meetings
Nicola Connelly (Internal, non-executive director) Attended five meetings
David Gracia Fabre (Internal, non-executive director) Attended five meetings
Marion Shepherd Venman (Internal, non-executive director) Attended five meetings
The terms of reference of the SPRH Board, together with the rest of the Energy Retail and Wholesale Governance and Sustainability System approved by
the SPRH Board, are published on www.spretailholdings.com under 'Corporate Governance'.
Directors’ indemnity
In terms of the Company's Articles of Association, a qualifying indemnity provision is in force for the benefit of all the directors of the Company and
of associated companies and has been in force during the financial year. In addition, the Directors have been granted a qualifying third party indemnity
provision, which continues in force.
Statement of directors’ responsibilities in respect of the Annual Report and Accounts
The directors are responsible for preparing the Annual Report and Accounts 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 have
elected to prepare the group financial statements in accordance with international accounting standards as adopted by the UK at the date of approval
of these Accounts and which are mandatory for the financial year ended 31 December 2022 (“UK-adopted international accounting standards”) and
applicable law, and have elected to prepare the parent company financial statements in accordance with UK generally accepted accounting practice,
Financial Reporting Standard 101 ‘Reduced Disclosure Framework’ (“FRS 101”) and applicable law.
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 the Group's 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 and then apply them consistently;
• make judgements and estimates that are reasonable, relevant, and reliable;
• for the Group financial statements, state whether they have been prepared in accordance with UK-adopted international accounting standards;
• for the parent company financial statements, state whether applicable UK accounting standards have been followed, subject to any material
departures disclosed and explained in the financial statements;
• assess the Group's 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 their 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 the Company and to prevent and detect fraud and other irregularities.
Under applicable law and regulations, the directors are also responsible for preparing a Strategic Report and Directors' Report 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 the financial statements differs from legislation in other jurisdictions.
Each of the Directors, whose names and functions are listed refer to ‘Board composition’ section of Directors’ report on page 51, confirms that to the
best of their knowledge:
• the Group and Company financial statements, which have been prepared in accordance with UK-adopted international accounting standards and
FRS 101 respectively, give a true and fair view of the assets, liabilities, financial position and profit of the Group and Company; and
• the Strategic report includes a fair review of the development and performance of the business and the position of the Group and Company,
together with a description of the principal risks and uncertainties that it faces.
Disclosure of information to auditor
Each of the directors in office at the date of this Annual Report and Accounts confirms that:
• so far as they are aware, there is no relevant audit information of which the Company’s auditor is unaware; and
• they have taken all the steps that they ought to have taken as a director in order to make themselves aware of any relevant audit information and
to establish that the Company’s auditor is aware of that information.
This confirmation is given and should be interpreted in accordance with the provisions of section 418 of the Companies Act 2006.
Scottish Power UK plc Annual Report and Accounts 2022
55
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Scottish Power UK plc Annual Report and Accounts 2022
Auditor
KPMG LLP were re-appointed as the auditor of the Company for the year ending 31 December 2023.
BY ORDER OF THE SPUK BOARD
Marion S Venman
Secretary
18 April 2023
Directors’ Report
CORPORATE GOVERNANCE continued
57
Scottish Power UK plc Annual Report and Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SCOTTISH POWER UK PLC
1. Our opinion is unmodified
We have audited the financial statements of Scottish Power UK plc
(“the Company”) for the year ended 31 December 2022 which comprise
the consolidated and company statements of financial position,
consolidated income statement, consolidated and company statements
of comprehensive income, consolidated and company statements of
changes in equity, consolidated and company statements of cash flows
and the related notes, including the accounting policies in notes 3 and
34.
In our opinion:
— 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 December 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 UK accounting standards, including
FRS 101 Reduced Disclosure Framework;
— the financial statements have been prepared in accordance with the
requirements of the Companies Act 2006.
Basis for opinion
We conducted our audit in accordance with International Standards on
Auditing (UK) (“ISAs (UK)”) and applicable law. Our responsibilities are
described below. We believe that the audit evidence we have obtained
is a sufficient and appropriate basis for our opinion. Our audit opinion
is consistent with our report to the Scottish Power Audit and Compliance
Committee (“SP ACC”).
We were first appointed as auditor by the directors on 11 January 2018.
The period of total uninterrupted engagement is for the six financial
years ended 31 December 2022. We have fulfilled our ethical
responsibilities under, and we remain independent of the Group in
accordance with, UK ethical requirements including the FRC Ethical
Standard as applied to listed public interest entities. No non-audit
services prohibited by that standard were provided.
Overview
Materiality: £34.5m (2021: £31m)
Group financial
statements as 5.0% (2021: 4.6%) of normalised Group
a whole profit before tax
Coverage 99% (2021: 99%) of Group profit before tax
Key audit matters vs 2021
Recurring risks Valuation of IAS 19 provision for
retirement benefit obligations
Valuation of certain unquoted
assets in the Group’s defined
benefit pension schemes
Carrying value of Retail accrued
(‘unbilled’) revenue
Recoverability of Retail billed
trade receivables
58
Scottish Power UK plc Annual Report and Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SCOTTISH POWER UK PLC
continued
2. Key audit matters: our assessment of risks of material misstatement
Key audit matters are those matters that, in our professional judgement, were of most significance in the audit of the financial statements and include
the most significant assessed risks of material misstatement (whether or not due to fraud) identified by us, including 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. We summarise below the
key audit matters (unchanged from 2021), in decreasing order of audit significance, in arriving at our audit opinion above, together with our key audit
procedures to address those matters and, as required for public interest entities, our results from those procedures. These matters were addressed, and
our results are based on procedures undertaken, in the context of, and solely for the purpose of, our audit of the financial statements as a whole, and in
forming our opinion thereon, and consequently are incidental to that opinion, and we do not provide a separate opinion on these matters.
Relevant to Group and Parent
company
Valuation of IAS 19 provision for
retirement benefit obligations
(Liability of £3,188.1 million; 2021:
Liability of £4,989.0 million)
Refer to page 53 (SP ACC
statement), page 68 (accounting
policy) and Note 9 (financial
disclosures).
Subjective valuation
Relatively small changes in certain
key actuarial assumptions
underlying the valuation of the
Group’s defined benefit schemes,
including the discount rate,
inflation rate and mortality/ life
expectancy of members, could
materially impact the valuation of
the liability.
The effect of these matters is that,
as part of our risk assessment, we
determined that the valuation of
the retirement benefit 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
and possibly many times that
amount.
The financial statements (Note 9)
disclose the sensitivity estimated
by the Group.
The risk Our response
Our procedures included:
— Methodology implementation:
Assessing, with the support of our own internal actuarial
specialists, the methodology implemented by the Group
for setting up the individual actuarial assumptions;
— Benchmarking assumptions:
Challenging, with the support of our actuarial specialists,
the key assumptions applied, being the discount rate, RPI
inflation and mortality/life expectancy against our
independently derived assumptions using market data for
each pension scheme;
— Assessing valuers’ credentials:
Evaluating the competence, capability and objectivity of the
Group’s external actuary; and
— Assessing transparency:
Considering the adequacy of the Group’s disclosures in
respect of the sensitivity of the liability to these assumptions.
We performed the tests above rather than seeking to rely on any of
the Group’s controls because the nature of the balance is such that
we would expect to obtain audit evidence primarily through the
detailed procedures described.
Our results
— We found the valuation of the IAS 19 provision for retirement
benefit obligations to be acceptable (2021: acceptable).
59
Scottish Power UK plc Annual Report and Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SCOTTISH POWER UK PLC
continued
Relevant to Group and
Parent company
Valuation of certain unquoted
assets in the Group’s defined
benefit pension schemes
(£923.9 million; 2021: £1,143.9
million).
Refer to page 53 (SP ACC
statement), page 77 (accounting
policy) and Note 9 (financial
disclosures).
Subjective estimate
Certain combined defined benefit
pension schemes’ unquoted plan
assets are subject to a higher
degree of estimation uncertainty
either due to their complexity
(longevity swaps) or as a result of
quoted prices being unavailable,
such as: private debt funds,
mezzanine funds, infrastructure
assets, and longevity insurance
contracts (‘longevity swaps’).
The effect of these matters is
that, as part of our risk
assessment, we determined that
the asset valuations of certain
unquoted investments have a high
degree of estimation uncertainty,
with a potential range of
reasonable outcomes greater than
our materiality for the financial
statements as a whole and
possibly many times that amount.
There are unprecedented levels
of uncertainty arising from global
energy prices and availability,
inflationary pressures and global
interest rate rises. We consider
these factors result in greater
estimation uncertainty in relation
to this key audit matter.
The risk Our response
2. Key audit matters: our assessment of risks of material misstatement continued
Our procedures included:
— Assessing valuers’ credentials:
Evaluating the competence, capability and objectivity of the
Group’s external experts engaged to independently value
the complex scheme assets;
— Our valuation expertise:
For the longevity swap, we engaged our own actuarial
specialists to critically assess the valuation of the Group’s
longevity swaps by comparing against our independently
derived valuation range;
— Assessing valuation methodology:
Challenging the valuation methodology used by the Group’s
external experts engaged (by the Trustees) to independently
value the complex scheme assets, including assessing if the
methodology is compliant with the relevant accounting
standards. Inspecting the results of management’s controls
in place to evaluate the adequacy of the NAV price used in
valuation of unquoted investments and to assess competency
of the investment managers who are responsible for
valuation;
— Tests of detail:
Performed substantive tests of detail on a sample of the
schemes’ assets to determine whether they had been
appropriately valued based on information from suitably
qualified and objective third parties. Additionally, we obtained
direct confirmations from third parties to support the
valuation of a sample of relevant unquoted investments; and
— Assessing transparency:
Considering the adequacy of the Group’s disclosures in
respect of the estimation uncertainty relating to more
complex scheme assets.
We performed the tests above rather than seeking to rely on any
of the Group’s controls because the nature of the balance is such
that we would expect to obtain audit evidence primarily through
the detailed procedures described.
Our results
— We found the valuation of certain unquoted assets in the
Group’s defined benefit pension schemes to be acceptable
(2021: acceptable).
60
Scottish Power UK plc Annual Report and Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SCOTTISH POWER UK PLC
continued
Relevant to Group only
Carrying value of Retail accrued
(‘unbilled’) revenue
(Gross carrying amount of
£1,263.7 million; 2021: £655.6
million)
(Provision: £20.9 million provision
relating to energy volumes which
have still to reach final settlement;
2021: £30.2 million)
Refer to page 53 (SP ACC
statement), pages 81 and 82
(accounting policy) and Note 11
(financial disclosures).
Subjective estimate
The recognition of accrued
(‘unbilled’) revenue is subject to a
degree of estimation uncertainty
as a result of the industry in which
the Retail business operates. If
actual meter readings are not
available at the year-end, energy
supplied to customers is estimated
based on standard external
industry settlement data or
internal information where
settlement data is not yet
available. The degree of estimation
uncertainty diminishes over time
as more accurate data becomes
available and customers are billed.
However, judgement is inherent
in the valuation of accrued
(‘unbilled’) revenue as at the year-
end.
The effect of these matters is that,
as part of our risk assessment, we
determined that the valuation of
Retail accrued (‘unbilled’) revenue
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.
There are unprecedented levels
of uncertainty arising from global
energy prices and availability,
inflationary pressures, and global
interest rates. We consider these
factors result in greater estimation
uncertainty in relation to the key
audit matter.
The financial statements (Note
22a(ii)) disclose the sensitivity
estimated by the Group.
The risk Our response
2. Key audit matters: our assessment of risks of material misstatement continued
Our procedures included:
— Control design, observation and operation:
Testing the design, implementation and operating
effectiveness of the Group’s internal controls over: the
algorithmic logic of the internal billing systems used
to derive estimates of customer consumption, changes to
pricing data, the validation of meter readings, the
identification of billing exceptions and interfaces with the
General Ledger;
— Our sector experience:
Evaluating the Group’s key assumptions, in particular those
relating to units of energy supplied, price per unit and the
provision in relation to energy volumes which are yet to reach
final settlement by comparing the Group’s assumptions to
external data, actual billing data and our own expectations
based on our knowledge of the entity and experience of the
industry in which it operates;
— Historical comparisons:
Evaluating the effectiveness of the Group’s prior period
estimation process by comparing the historical estimate to
the actual outcome;
— Data comparisons:
We performed a comparison of volume data for the financial
year to standard settlement data obtained directly from the
external industry bodies;
— Tests of detail:
Comparing the Group’s estimate as at the year-end to
standard external industry settlement data and billing
information available post year-end;
— Tests of detail:
Agreeing a sample of invoices issued to industrial and
commercial customers to cash receipts;
— Reperformance:
Performing a recalculation of total Retail revenue (including
accrued revenue) in the year based on external energy volume
data and calculated prices per unit and comparing it to the
actual amounts recognised in the income statement; and
— Assessing transparency:
Assessing the adequacy of the Group’s disclosures about the
degree of estimation uncertainty associated with the valuation
of accrued (‘unbilled’) revenue.
Our results
— We found the carrying value of Retail accrued (‘unbilled’)
revenue to be acceptable (2021: acceptable).
61
Scottish Power UK plc Annual Report and Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SCOTTISH POWER UK PLC
continued
Relevant to Group only
Recoverability of Retail billed
trade receivables
(Gross carrying amount: £1,134.9
million; 2021: £783.1 million)
(Loss allowance: £261.7 million;
2021: £202.6 million)
Refer to page 53 (SP ACC
statement), pages 81 and 82
(accounting policy) and Note 11
(financial disclosures).
Subjective estimate
The Retail business carries
significant exposure over the
recoverability of customer
receivables. This risk is heightened
in the current year due to the
circumstances created by the
energy crisis in the UK which has
caused significant price increases
and market volatility. These factors
are similar to those addressed in
prior years, stemming from the
pandemic which also created
additional uncertainty over
customers’ ability to pay.
An allowance for expected credit
losses is provided based on an
estimate of future cash flows.
In arriving at this estimate, the
Group considers the current
ageing profile of debt, historical
collections experience by payment
plan, credit ratings for industrial
and commercial (I&C) customers
and an assessment of current
economic conditions, which is in
line with the approach required
by IFRS 9.
The effect of these matters is that,
as part of our risk assessment, we
determined that the valuation of
Retail billed trade receivables 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.
The financial statements (Note
11(e)A3) disclose the sensitivity
estimated by the Group.
The risk Our response
2. Key audit matters: our assessment of risks of material misstatement continued
Our procedures included:
— Control design, observation and operation:
Testing the design, implementation and operating effectiveness
of the Group’s internal controls over the relevant data
elements used in the estimation of the loss allowance and the
process for reconciling cash receipts from retail customers to the
relevant General Ledger;
— Our sector experience:
Benchmarking methodology, including how the current ageing
profile of debt, historical collections experience by payment plan,
external credit ratings for industrial and commercial customers
and the assessment of current economic conditions are
incorporated, to industry practice and our expectations based
on our knowledge of the entity and experience of the industry
in which it operates;
— Historical comparisons:
Evaluating the effectiveness of the Group’s estimation process
by comparing original estimates to the actual outcome over
several periods;
— Personnel interviews:
Performing specific inquiries with financial and non-financial
personnel to assess whether the Group’s judgements and
estimates reflect operational risk;
— Reperformance:
Assessing whether the loss allowance, recognised as at the year-
end, was accurately and consistently calculated in accordance
with the Group’s methodology;
— Tests of detail:
Inquiring and inspecting, for a sample of trade receivables, the
level of cash collected for industrial and commercial customers,
subsequent to the year-end; and
— Assessing transparency:
Assessing the adequacy of the Group’s disclosures about the
degree of estimation involved in arriving at the allowance for
expected credit loss.
Our results
— We found the carrying amount for Retail billed trade receivables
to be acceptable (2021: acceptable).
62
Scottish Power UK plc Annual Report and Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SCOTTISH POWER UK PLC
continued
3. Our application of Group materiality and an
overview of the scope of our audit
Materiality for the Group financial statements as a whole
was set at £34.5 million (2021: £31 million), determined
with reference to a benchmark of Group profit before tax,
normalised by averaging over the last five years due to
fluctuations in the business cycle, of £694.1 million (2021:
£672.7 million) of which it represents 5.0% (2021: 4.6%).
Materiality for the parent company financial statements
was set with reference to a benchmark of net assets but
capped at £33 million (2021: £30.5 million) due to the
level of Group materiality.
In line with our audit methodology, our procedures on
individual account balances and disclosures were
performed to a lower threshold, performance materiality,
so as to reduce to an acceptable level the risk that
individually immaterial misstatements in individual
account balances add up to a material amount across the
financial statements as a whole.
Performance materiality was set at 75% (2021: 75%) of
materiality for the financial statements as a whole, which
equates to £25.8 million (2021: £23.3 million) for the
group and £24.7 million (2021: £22.8 million) for the
parent company. We applied this percentage in our
determination of performance materiality because we
did not identify any factors indicating an elevated level
of risk.
We agreed to report to the SP ACC any corrected or
uncorrected identified misstatements exceeding £1.7
million (2021: £1.6 million), in addition to other identified
misstatements that warranted reporting on qualitative
grounds.
8 (2021: 9) of the Group’s 50 (2021: 30) components
were subject to full scope audit procedures and 3 (2021: 1)
components were subject to audit of account balance
(PP&E only) performed in the UK by the Group audit team.
These components, together with balances audited as
part of the consolidation (such as goodwill and intangible
assets) represented 100% (2021: 100%) of Group revenue,
99% (2021: 99%) of profit before tax and 94% (2021: 99%)
of total assets. Of the 94%, 93% (2021: 98%) of total assets
were subject to full scope audit and 1% (2021: 1%) were
subject to audit of PP&E only.
For the residual components, we performed analysis at
an aggregated group level to re-examine our assessment
that there were no significant risks of material
misstatement within these.
We were able to rely upon the Group's internal control
over financial reporting in several areas of our audit,
where our controls testing supported this approach,
which enabled us to reduce the scope of our substantive
audit work; in the other areas the scope of the audit work
performed was fully substantive.
Group Materiality
£34.5m (2021: £31.0m)
£34.5 million
Whole financial
statements materiality
(2021: £31 million)
£25.8 million
(2021: £25.0 million)
Range of materiality
at 11 components (£2.6 million
to £27 million) (2021: £4 million
to £24 million)
£1.7m
Misstatements reported
to the SP ACC (2021:
£1.6 million)
Normalised Group
profit before tax
£694.1 million
(2021: £672.7 million)
Normalised PBT
Group materiality
63
Scottish Power UK plc Annual Report and Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SCOTTISH POWER UK PLC
continued
4. Going concern
The directors have prepared the financial statements on the going
concern basis as they do not intend to liquidate the Group or the
Company or to cease their operations, and as they have concluded that
the Group’s and the Company’s financial position means that this is
realistic. They have also concluded that there are no material
uncertainties that could have cast significant doubt over their ability to
continue as a going concern for at least a year from the date of approval
of the financial statements (“the going concern period”).
We used our knowledge of the Group, its industry, and the general
economic environment to identify the inherent risks to its business
model and analysed how those risks might affect the Group’s and
Company’s financial resources or ability to continue operations over the
going concern period. The risks that we considered most likely to
adversely affect the Group’s and Company’s available financial resources
over this period were the impact on the Retail division of increased
wholesale energy prices, an increase in customer debt due to slower
cash collections, the extent of permitted cost recovery under the
domestic price cap, potential prepayment meter restrictions and a
reduction in customer demand.
We also considered less predictable but realistic second order impacts,
such as volume and price decreases along with widespread storm
related costs in the Networks division and reductions in wind power
prices and volumes in the Renewables division.
We considered whether these risks could plausibly affect the liquidity
in the going concern period by assessing the directors’ sensitivities over
the level of available financial resources indicated by the Group’s
financial forecasts taking account of severe, but plausible adverse
effects that could arise from these risks individually and collectively.
Our procedures also included critically assessing assumptions in the
directors’ base and downside scenarios relevant to liquidity, in particular
increased capital expenditure in the Renewables division and reductions
in the forward price projections for Renewables’ generation output.
We considered whether the going concern disclosure in notes 2A3 and
34B to the financial statements gives a full and accurate description of
the directors’ assessment of going concern, including the identified
risks and dependencies.
Our conclusions based on this work:
— we consider that the directors’ use of the going concern basis of
accounting in the preparation of the financial statements is
appropriate;
— we have not identified, and concur with the directors’ assessment
that there is not, a material uncertainty related to events or
conditions that, individually or collectively, may cast significant
doubt on the Group’s or Company’s ability to continue as a going
concern for the going concern period; and
— we found the going concern disclosure in notes 2A3 and 34B to
be acceptable.
However, as we cannot predict all future events or conditions and as
subsequent events may result in outcomes that are inconsistent with
judgements that were reasonable at the time they were made, the above
conclusions are not a guarantee that the Group or the Company will
continue in operation.
5. Fraud and breaches of laws and regulations – ability to detect
Identifying and responding to risks of material misstatement due to fraud
To identify risks of material misstatement due to fraud (“fraud risks”)
we assessed events or conditions that could indicate an incentive or
pressure to commit fraud or provide an opportunity to commit fraud.
Our risk assessment procedures included:
— Enquiring of directors, the internal audit function, the group’s
legal function and the compliance function and inspection of
policy documentation as to the Group’s high-level policies and
procedures to prevent and detect fraud and the Group’s channel
for “whistleblowing”, as well as whether they have knowledge of
any actual, suspected or alleged fraud.
— Reading Board and Audit and Compliance Committee and minutes.
— Using analytical procedures to identify any unusual or unexpected
relationships.
— Consultation with our own forensic professional regarding the
identified potential fraud risks. This involved discussion between
the forensic professional and the senior members of the
engagement team.
We communicated identified fraud risks throughout the audit team
and remained alert to any indications of fraud throughout the audit.
This included communication from the group to component audit
teams of relevant fraud risks identified at the Group level and a request
to component audit teams to report to the Group audit team any
instances of fraud that could give rise to a material misstatement at
Group level.
As required by auditing standards, and taking into account possible
pressures to meet profit targets, and our overall knowledge of the
control environment, we performed procedures to address the risk of
management override of controls, in particular the risk that Group and
component management may be in a position to make inappropriate
accounting entries and the risk of bias in accounting estimates and
judgements such as the recognition of defined benefit pension
assumptions, defined benefit pension asset valuations, valuation of
Retail accrued revenue and valuation of Retail billed debt. On this audit
we do not believe there is a fraud risk related to revenue recognition
because, with the exception of the accrued revenue, the Group’s
revenues consist entirely of routine, non-complex transactions which
are subject to systematic processing and do not require significant
judgements.
We also identified a fraud risk related to the accounting for the
domestic ‘Energy Price Guarantee’ mechanism applicable to the Energy
Retail business and the determination of the amounts payable to or
receivable from the government in connection with this scheme.
We performed procedures including:
— Identifying journal entries and other adjustments to test based
on risk criteria and comparing the identified entries to supporting
documentation. These included those posted by senior finance
management and those posted to unusual accounts, including
additional unexpected combinations associated with the energy
retail discount accounts. Testing the design, implementation and
operating effectiveness of internal controls related to quarterly
balance sheet reconciliations for the Energy Price Guarantee
receivables balance, as well as performing tests of details over the
year end balance sheet reconciliation.
— Assessing significant accounting estimates for bias.
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SCOTTISH POWER UK PLC
continued
5. Fraud and breaches of laws and regulations – ability to detect
6. We have nothing to report on the strategic report and the
continued
directors’ report
Identifying and responding to risks of material misstatement due to
The directors are responsible for the strategic report and the directors’
non-compliance with laws and regulations
report. Our opinion on the financial statements does not cover those
We identified areas of laws and regulations that could reasonably be
reports and we do not express an audit opinion thereon.
expected to have a material effect on the financial statements from our
Our responsibility is to read the strategic report and the directors’
general commercial and sector experience, through discussion with the
report and, in doing so, consider whether, based on our financial
directors and other management (as required by auditing standards),
statements audit work, the information therein is materially misstated
and from inspection of the Group’s regulatory and legal correspondence
or inconsistent with the financial statements or our audit knowledge.
and discussed with the directors and other management the policies
and procedures regarding compliance with laws and regulations.
Based solely on that work we have not identified material
misstatements in the other information.
As the Group is regulated, our assessment of risks involved gaining an
understanding of the control environment including the entity’s
Strategic report and directors’ report
procedures for complying with regulatory requirements.
Based solely on our work on the other information:
We communicated identified laws and regulations throughout our team
— we have not identified material misstatements in the strategic
and remained alert to any indications of non-compliance throughout
report and the directors’ report;
the audit.
— in our opinion the information given in those reports for the
The potential effect of these laws and regulations on the financial
financial year is consistent with the financial statements; and
statements varies considerably.
— in our opinion those reports have been prepared in accordance
Firstly, the Group is subject to laws and regulations that directly affect
with the Companies Act 2006.
the financial statements including financial reporting legislation
7. We have nothing to report on the other matters on which
(including form and content) including related companies legislation,
distributable profits legislation, pensions legislation in respect of
we are required to report by exception
defined benefit pension schemes, tax legislation and regulatory
Under the Companies Act 2006, we are required to report to you if,
requirements governing certain revenue streams and we assessed the
in our opinion:
extent of compliance with these laws and regulations as part of our
procedures on the related financial statement items.
— adequate accounting records have not been kept by the parent
Company, or returns adequate for our audit have not been received
Secondly, the Group is subject to many other laws and regulations
from branches not visited by us; or
where the consequences of non-compliance could have a material effect
— the parent Company financial statements are not in agreement
on amounts or disclosures in the financial statements, for instance
with the accounting records and returns; or
through the imposition of fines or litigation or the loss of the Group’s
licences to operate. We identified the following areas as those most
— certain disclosures of directors’ remuneration specified by law are
likely to have such an effect: GDPR compliance, health and safety
not made; or
legislation, fraud, corruption and bribery legislation, employment and
— we have not received all the information and explanations we
social security legislation including minimum wage and pension auto-
require for our audit.
enrolment, environmental protection legislation, Ofgem regulations and
distance selling regulations, recognising the regulated nature of the
We have nothing to report in these respects.
Group’s activities. This includes the Ofgem related matters disclosed in
8. Respective responsibilities
Note 30, for which we assessed disclosures against our understanding
from inspection of relevant correspondence between the group, and
Directors’ responsibilities
Ofgem. Auditing standards limit the required audit procedures to
As explained more fully in their statement set out on page 55, the
identify non-compliance with these laws and regulations to enquiry of
directors are responsible for: the preparation of the financial statements
the directors and other management and inspection of regulatory and
including being satisfied that they give a true and fair view; such internal
legal correspondence, if any. Therefore if a breach of operational
control as they determine is necessary to enable the preparation of
regulations is not disclosed to us or evident from relevant
financial statements that are free from material misstatement, whether
correspondence, an audit will not detect that breach.
due to fraud or error; assessing the Group and parent Company’s ability
to continue as a going concern, disclosing, as applicable, matters related
We discussed with the Audit and Compliance Committee other matters
to going concern; and using the going concern basis of accounting
related to actual or suspected breaches of laws or regulations, for which
unless they either intend to liquidate the Group or the parent Company
disclosure is not necessary, and considered any implications for our audit.
or to cease operations, or have no realistic alternative but to do so.
Context of the ability of the audit to detect fraud or breaches of law
Auditor’s responsibilities
or regulation
Our objectives are to obtain reasonable assurance about whether the
Owing to the inherent limitations of an audit, there is an unavoidable
financial statements as a whole are free from material misstatement,
risk that we may not have detected some material misstatements in
whether due to fraud or error, and to issue our opinion in an auditor’s
the financial statements, even though we have properly planned and
report. Reasonable assurance is a high level of assurance, but does not
performed our audit in accordance with auditing standards. For
guarantee that an audit conducted in accordance with ISAs (UK) will
example, the further removed non-compliance with laws and
always detect a material misstatement when it exists. Misstatements
regulations is from the events and transactions reflected in the financial
can arise from fraud or error and are considered material if, individually
statements, the less likely the inherently limited procedures required
or in aggregate, they could reasonably be expected to influence the
by auditing standards would identify it.
economic decisions of users taken on the basis of the financial
In addition, as with any audit, there remained a higher risk of non-
statements.
detection of fraud, as this may involve collusion, forgery, intentional
A fuller description of our responsibilities is provided on the FRC’s
omissions, misrepresentations, or the override of internal controls. Our
website at www.frc.org.uk/auditorsresponsibilities.
audit procedures are designed to detect material misstatement. We are
not responsible for preventing non-compliance or fraud and cannot be
expected to detect non-compliance with all laws and regulations.
Scottish Power UK plc Annual Report and Accounts 2022
64
65
Scottish Power UK plc Annual Report and Accounts 2022
INDEPENDENT AUDITOR’S REPORT
TO THE MEMBERS OF SCOTTISH POWER UK PLC
continued
9. The purpose of our audit work and to whom we owe our
responsibilities
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.
Andrew Williamson (Senior Statutory Auditor)
for and on behalf of KPMG LLP, Statutory Auditor
Chartered Accountants
319 St. Vincent Street
Glasgow
G2 5AS
18 April 2023
66
Scottish Power UK plc Annual Report and Accounts 2022
SCOTTISH POWER UK PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
at 31 December 2022
2022 2021
Notes £m £m
ASSETS
NON-CURRENT ASSETS
Intangible assets 527 .9 588.8
Goodwill 6 364.6 364.6
Other intangible assets 6 163.3 224.2
Property, plant and equipment 1 5,227 .6 1 5,027.1
Property, plant and equipment in use 7 1 3,91 0.3 13,876.8
Property, plant and equipment in the course of construction 7 1 ,31 7 .3 1, 150.3
Right-of-use assets 8 459.6 455.3
Pensions asset 9 341 .9 29 1.7
Non-current financial assets 237 .6 240.5
Investments in joint ventures 10 8.7 7 .7
Other investments 11 0.2 0.2
Derivative financial instruments 11 228.7 232.6
Non-current trade and other receivables 12 1 6.4 29.7
TOTAL NON-CURRENT ASSETS 16 , 811. 0 1 6,633.1
CURRENT ASSETS
Inventories 13 642. 2 954.8
Current trade and other receivables 12 3,286.7 2,558.4
Current tax asset 78.8 67.7
Current financial assets 428.5 1 ,290.2
Derivative financial instruments 11 428.5 1 ,290.2
Cash 11 869.1 1 82.9
TOTAL CURRENT ASSETS 5,305.3 5,054.0
TOTAL ASSETS 22, 11 6.3 21 ,687 .1
67
Scottish Power UK plc Annual Report and Accounts 2022
2022 2021
Notes £m £m
EQUITY AND LIABILITIES
EQUITY
Of shareholders of the parent 14 6,03 1.9 7,89 1.9
Share capital 14, 15 3,551 .7 3,551.7
Share premium 14 398.2 398.2
Hedge reserve 14 (7 49.8 ) 793.3
Other reserves 14 420.5 420.5
Retained earnings 14 2,4 11 .3 2,728.2
Of non-controlling interests 16 1 ,035.2 1 ,08 1.7
TOTAL EQUITY 7 ,067 .1 8,973.6
NON-CURRENT LIABILITIES
Non-current deferred income 17 1,425.5 1,397 .7
Non-current provisions 357 .6 548.3
Provisions for retirement benefit obligations 9 101. 9 9 9 . 5
Other provisions 18 255.7 448.8
Bank borrowings and other non-current financial liabilities 4,489.5 4,773.5
Loans and other borrowings 19 4, 1 47 .8 4,561.0
Derivative financial instruments 11 34 1.7 2 1 2.5
Non-current lease liabilities 8 487 .8 477 .5
Non-current trade and other payables 20 1 0.4 8.8
Non-current income tax liabilities 6.2 6.2
Deferred tax liabilities 21 1 ,354.8 1 ,650.0
TOTAL NON-CURRENT LIABILITIES 8 ,131 . 8 8,862.0
CURRENT LIABILITIES
Current deferred income 17 57 .2 0. –
Current provisions 336.4 350.2
Other provisions 18 336.4 350.2
Bank borrowings and other current financial liabilities 4,206.6 1 ,563.7
Current financial liabilities 11 23.8 34.8
Loans and other borrowings 19 2 ,805.8 1 ,021.8
Derivative financial instruments 11 1 ,377 .0 507.1
Current lease liabilities 8 36.0 33.2
Current trade and other payables 20 2,281 .2 1,904.4
TOTAL CURRENT LIABILITIES 6,9 17.4 3,851.5
TOTAL LIABILITIES 15 , 0 4 9 . 2 12 , 713 . 5
TOTAL EQUITY AND LIABILITIES 22, 1 1 6.3 21,687.1
SCOTTISH POWER UK PLC
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
continued
at 31 December 2022
The accompanying Notes 1 to 33 and Appendix 1 are an integral part of the Consolidated statement of financial position at 31 December 2022.
68
Scottish Power UK plc Annual Report and Accounts 2022
2022 2021
Notes £m £m
Revenue 22 8,434.9 5,349.7
Procurements (5,809.2 ) (2,842.2 )
GROSS MARGIN 2,625.7 2,507 .5
Net staff costs 23 (259.6 ) (1 91 .8 )
External services (564.9 ) (57 6.1 )
Other operating results 1 05.8 83.4
Net operating costs (7 18.7 ) (684.5 )
Taxes other than income tax 24 (1 98.1 ) (23 1.8 )
GROSS OPERATING PROFIT 1,708.9 1,59 1 .2
Net expected credit losses on trade and other receivables (86.5 ) (1 08.0 )
Depreciation and amortisation charge, allowances and provisions 25 (787 .9 ) (7 62.8 )
OPERATING PROFIT 834.5 720.4
Result of companies accounted for using the equity method 10 1 .3 –
Finance income 26 108.8 14.8
Finance costs 27 (243.4 ) (1 84.6 )
PROFIT BEFORE TAX 70 1.2 550.6
Income tax 28 (1 41 .4 ) (448.6 )
NET PROFIT FOR THE YEAR 559.8 1 02.0
Non-controlling interests 16 (72.8 ) (47 .5 )
NET PROFIT FOR THE YEAR ATTRIBUTABLE TO THE PARENT
All results relate to continuing operations.
SCOTTISH POWER UK PLC
CONSOLIDATED INCOME STATEMENT
for the year ended 31 December 2022
The accompanying Notes 1to 33 and Appendix 1 are an integral part of the Consolidated income statement for the year ended 31 December 2022.
SCOTTISH POWER UK PLC
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
for the year ended 31 December 2022
2022 2021
Note £m £m
NET PROFIT FOR THE YEAR 559.8 1 02.0
OTHER COMPREHENSIVE INCOME
Items that may be subsequently reclassified to the Income statement:
Cash flow hedges:
Change in the value of cash flow hedges 14 (1 ,959. 1 ) 793.0
Tax relating to cash flow hedges 14 406.9 (1 57 .1 )
(1 ,552.2 ) 635.9
Items that will not be reclassified to the Income statement:
Retirement benefits:
Movements in retirement benefits 14 (49.5 ) 586.0
Tax relating to movements in retirement benefits 14 9.2 (1 26.4 )
Cash flow hedges:
Change in the value of cash flow hedges 14 11. 8 (1 .6 )
Tax relating to cash flow hedges 14 (2.8 ) 0.3
(3 1.3 ) 458.3
OTHER COMPREHENSIVE INCOME FOR THE YEAR (1 ,583.5 ) 1 ,094.2
TOTAL COMPREHENSIVE INCOME FOR THE YEAR (1 ,023.7 ) 1 , 196.2
Total comprehensive income for the year attributable to equity holder of the parent (1 ,096.4 ) 1 , 149.7
Total comprehensive income for the year attributable to non-controlling interests 72.7 46.5
TOTAL COMPREHENSIVE INCOME FOR THE YEAR (1 ,023.7 ) 1 , 196.2
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
for the year ended 31 December 2022
Attributable to equity holder of the parent
Non-
Share Share Hedge Other Retained controlling Total
capital premium reserve reserves earnings Total interests equity
Note £m £m £m £m £m £m £m £m
At 1January 2021 3,55 1 .7 398.2 1 57 .7 420.5 2,2 14. 1 6,7 42.2 1 , 0 9 1 . 0 7 ,833.2
Total comprehensive income for the year – – 635.6 – 5 14. 1 1 ,1 49.7 46.5 1 , 1 96 . 2
Dividends – – – – – – (55.8 ) (55.8 )
At 31 December 2021 3,55 1.7 398.2 793.3 420.5 2,728.2 7,891 .9 1 , 08 1 . 7 8,973.6
Adjustments due to impact of IAS 37 amendments (refer to Note 2B(a)) – ––0.––0.(48.6 ) .(48.6) 0.– (48.6 )
Adjusted balance at 1January 2022 – 3,55 1.7 398.2 793.3 420.5 2,679.6 7 ,843.3 1 , 08 1 . 7 8,925.0
Total comprehensive income for the year – – (1,543. 1 ) – 446.7 (1 ,096.4 ) 72.7 (1,023.7 )
Dividends – – – – (71 5.0 ) (7 15.0 ) (1 1 9.2 ) (834.2 )
At 31 December 2022 1,779.1 3,55 1.7 398.2 (7 49.8 ) 420.5 2,4 11 .3 6,031 .9 1 ,035.2 7 ,067 .1
The accompanying Notes1 to 33 and Appendix 1 are an integral part of the Consolidated statement of comprehensive income and the Consolidated statement of changes in
equity for the year ended 31 December 2022.
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69
SCOTTISH POWER UK PLC
CONSOLIDATED STATEMENT OF CASH FLOWS
for the year ended 31 December 2022
2022 2021
£m £m
Cash flows from operating activities
Profit before tax 70 1 .2 550.6
Adjustments for:
Depreciation, amortisation and impairment 77 4.7 752.5
Research and development expenditure credit (0.4 ) 0. –
Change in provisions 373.6 467 .3
Result of companies accounted for using the equity method (1 .3 ) 0. –
Transfer of assets from customers (45.3 ) (43.9 )
Net finance income and costs 1 34.6 169.8
Net losses on disposal/write-off non-current assets 11. 2 7. 5
Gain on disposal of subsidiary (8.5 ) 0 .–
Movement in retirement benefits (92.2 ) (1 71 .3 )
Net fair value (gains)/losses on operating derivatives (including early settlement) (2 1.2 ) 211. 9
Movement in deferred income (0.4 ) 0. –
Changes in working capital:
Change in trade and other receivables (853.2 ) (1 33.2 )
Change in inventories (1 11 .3 ) (444.5 )
Change in trade and other payables 313 . 7 7 43.9
Provisions paid (1 4.8 ) (5.8 )
Assets received from from customers (deferred income) 1 14.0 101.9
Other deferred income received 1 0.7 0 .–
Income taxes paid (22.6 ) (93.4 )
Net cash flows from operating activities (i) 1 ,262.5 2,1 1 3.3
Cash flows from investing activities
Interest received 15 . 2 17.8
Investments in intangible assets (55.5 ) (11 5.4 )
Investments in property, plant and equipment (966. 1 ) (908.9 )
Movements in investments in joint ventures 0.3 0. –
Proceeds from disposal of property, plant and equipment 3.2 2.6
Proceeds from disposal of subsidiary 9.0 0. –
Increase in amounts due from Iberdrola Group companies – current loans receivable (47 .3 ) (346. 1 )
Net cash flows from investing activities (ii) (1 ,04 1 .2 ) (1 ,350.0 )
Cash flows from financing activities
Increase/(decrease) in amounts due to Iberdrola Group companies – current loans payable 1 ,51 8.8 (1,4 1 7 .9 )
Increase in amounts due to Iberdrola Group companies – non-current loans payable 0. – 1 ,250.0
Dividends paid to the Company’s equity holder (7 15.0 ) 0. –
Dividends paid to non-controlling interest (1 19.2 ) (55.8 )
Interest paid (1 64.4 ) (149. 1 )
Interest paid on lease liabilities (1 8.4 ) (15.2 )
Repayments of borrowing and other financial liabilities (1 1.0 ) (30 8.7 )
Payments of lease liabilities (25.9 ) (23.8 )
Net cash flows from financing activities (iii) 464.9 (720.5 )
Net increase in cash and cash equivalents (i)+(ii)+(iii) 686.2 42.8
Cash and cash equivalents at beginning of year 1 82.9 1 40.1
Cash and cash equivalents at end of year 869. 1 1 82.9
Cash and cash equivalents at end of year comprises:
Consolidated statement of financial position cash (including restricted cash – refer to Note 11(a)) 869. 1 1 82.9
Consolidated statement of cash flows cash and cash equivalents
The accompanying Notes 1 to 33 and Appendix 1 are an integral part of the Consolidated statement of cash flows for the year ended 31 December 2022.
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SCOTTISH POWER UK PLC
NOTES TO THE CONSOLIDATED ACCOUNTS
31 December 2022
1 GROUP ACTIVITIES
71
SCOTTISH POWER UK PLC
NOTES TO THE CONSOLIDATED ACCOUNTS
continued
31 December 2022
2 BASIS OF PREPARATION continued
A BASIS OF PREPARATION OF THE CONSOLIDATED ACCOUNTS continued
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NOTES TO THE CONSOLIDATED ACCOUNTS
continued
31 December 2022
2 BASIS OF PREPARATION continued
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continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
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continued
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continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
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84
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NOTES TO THE CONSOLIDATED ACCOUNTS
continued
31 December 2022
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continued
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continued
31 December 2022
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NOTES TO THE CONSOLIDATED ACCOUNTS
continued
31 December 2022
5 BUSINESS SEGMENT REPORTING continued
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continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
8 LEASING continued
A LESSEE continued
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94
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NOTES TO THE CONSOLIDATED ACCOUNTS
continued
31 December 2022
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NOTES TO THE CONSOLIDATED ACCOUNTS
continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
* CMI – Continuous mortality investigations
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continued
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continued
31 December 2022
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continued
31 December 2022
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continued
31 December 2022
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continued
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continued
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continued
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continued
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continued
31 December 2022
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continued
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continued
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continued
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continued
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continued
31 December 2022
11 FINANCIAL INSTRUMENTS continued
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NOTES TO THE CONSOLIDATED ACCOUNTS
continued
31 December 2022
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continued
31 December 2022
11 FINANCIAL INSTRUMENTS continued
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continued
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continued
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continued
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continued
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continued
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continued
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continued
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continued
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continued
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continued
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continued
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NOTES TO THE CONSOLIDATED ACCOUNTS
continued
31 December 2022
32 RELATED PARTY TRANSACTIONS continued
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SCOTTISH POWER UK PLC
The accompanying Notes 34 to 53 and Appendix 1are an integral part of the Company statement of comprehensive income and the Company statement of changes in
equity for the year ended 31 December 2022.
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SCOTTISH POWER UK PLC
The accompanying Notes 34 to 53 and Appendix 1are an integral part of the Company statement of cash flows for the year ended 31December 2022.
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Scottish Power UK plc
Registered office: 320 St. Vincent Street, Glasgow, Scotland, G2 5AD
Registered in Scotland: No. SC117120