Generation Plans

Scottish & Southern Energy PLC
01 October 2007


                        STATEMENT ON GENERATION PLANS AND

                          NOTIFICATION OF CLOSE PERIOD


Scottish and Southern Energy plc ('SSE') has completed a review of its plans and
investment opportunities in electricity generation following its adoption of a
target to reduce by 20% over 10 years the amount of carbon dioxide per kilowatt
hour of electricity produced at power stations in which it has an ownership or
contractual interest.


Key Points

  • Investment plan for Ferrybridge power station to focus on a new 800MW
    Supercritical and carbon capture-ready plant;

  • Review of carbon capture options to include Fiddler's Ferry, as well as
    Peterhead and Ferrybridge;

  • Options to be developed for a new CCGT plant, with a view to development
    after the commissioning of the Marchwood plant currently under construction;

  • Proposal to complete the re-powering of Peterhead power station, with
    the installation of 340MW of new CCGT plant;

  • Possible development of up to 1,000MW of wind farm capacity in deep
    water in the Moray Firth;

  • Expansion of the purchase of Carbon Emissions Reduction Certificates
    through planned support for hydro refurbishments in Brazil; and

  • Creation of market-leading tidal and wave energy company, through merger
    of SSE's Renewable Technology Ventures Ltd and Aquamarine Power Ltd.


Context

SSE owns just over 10,000MW of electricity generation capacity, including its
share of joint ventures. This comprises almost 4,400MW of gas-fired capacity,
4,000MW of coal-fired capacity (with biomass 'co-firing' capability), over
1,500MW of hydro and wind capacity and 150MW of oil-fired capacity. This gives
SSE diversity in fuels and, as a result, greater optionality in the overall
management of its power stations.


As the Energy White Paper pointed out, the UK will need substantial investment
in new generation capacity over the next two decades. It also pointed out that
the UK's diverse generation mix avoids exposure to the risks associated with
heavy dependency on a single fuel or technology type, helps to maintain secure
supplies of energy and provides the country's electricity system with the
flexibility to accommodate variations in demand and responses to changes in
fossil fuel prices.


The same points apply to SSE's portfolio. Its key objectives in generation,
therefore, continue to be to ensure that it has a diverse portfolio of power
stations, available to generate electricity, with the maximum possible
efficiency, in response to customer demand and market conditions, while
complying fully with all safety standards and environmental regulations.


Coal and Biomass

SSE has opted in to the Large Combustion Plan Directive all of the capacity at
Fiddler's Ferry and half of the capacity at Ferrybridge and as a result is
installing Flue Gas Desulphurisation (FGD) equipment in an investment expected
to total around £225m. The installation of FGD will allow a total of 3,000MW of
capacity at the two stations to remain open after 2015 and is currently expected
to be complete in time for them to begin generating electricity through a
'de-sulphurised' process next year.


In May 2006, SSE established a partnership with Doosan Babcock Energy, Siemens
and UK Coal with a view to the possible installation at Ferrybridge of a 500MW
Supercritical Boiler and Steam Turbine, while re-employing existing coal
handling facilities and other major infrastructure. As stated in SSE's
Preliminary Results in May 2007, however, costs across the power equipment
sector have risen and the required level of investment for this project has
proved to be significantly greater than originally expected. Against this
background, SSE will not proceed with this project.


At the same time, SSE has concluded that there is still likely to be a need to
replace that capacity at Ferrybridge which is scheduled to close in 2015. It has
decided to examine the options for doing this, focusing on an 800MW unit using
the Supercritical Boiler technology. This would secure a significant improvement
in the thermal efficiency, from around 37% for the existing plant to around 45%,
and deliver a significant reduction in the amount of CO2 per kilowatt hour of
electricity produced. Any plant would also be made 'capture ready', enabling it
to be fitted with carbon capture and storage (CCS) technology. Key issues in
considering the options will include the price of carbon emissions allowances
and the availability of turbines. As a result, any new coal plant is unlikely to
be commissioned before 2014, with a decision to be made around the turn of the
decade. SSE will now focus on gaining consent for this unit.


Carbon Capture and Storage (CCS)

The Energy White Paper confirmed that the UK government would later this year
launch a competition to develop the UK's first full-scale demonstration of CCS.
The timetable for the competition was not compatible with the requirements of
all of the participants in the proposal to develop a 475MW carbon capture plant
at SSE's power station at Peterhead and it became clear in May 2007 that that
particular project could not proceed. Similarly, the 'retro-fitting' concept
originally envisaged for Ferrybridge featured the deployment of post-combustion
carbon capture equipment alongside the Supercritical Boiler, and so it will not
feature in the competition.


CCS, including the related transportation systems, faces significant technical
and regulatory challenges before it will become a viable contributor to the goal
of lower carbon energy production. Nevertheless, the potential opportunities are
significant. SSE has been very active in this field since it embarked on the
first project at Peterhead and alternative CCS options exist there, at
Ferrybridge and at Fiddler's Ferry. These options, which include the potential
use of depleted oil and gas fields and offshore aquifers, are being actively
explored. SSE hopes to be able to submit a project for inclusion in the
forthcoming competition. In addition, SSE is participating in several research
projects, some of which are supported by the Department for Business, Enterprise
and Regulatory Reform, focusing on CCS technologies related to coal pulverised
fuel plant.


Gas

Work on the construction of Marchwood Power Ltd's new 840MW combined cycle gas
turbine (CCGT) plant in Southampton is now well under way, and the UK Energy
Minister visited the development on 27 September 2007. Marchwood Power Ltd is a
50:50 joint venture between SSE and ESB International. The plant is on course to
be completed and in commercial operation in time for the winter of 2009/10. With
a net thermal efficiency in excess of 58%, it will be one of the most efficient
in the UK. In addition, Barking Power Ltd, in which SSE has a 30.4% stake, has
submitted a Section 36 application for consent to develop a new 400MW CCGT
which, if consented, would effectively add around 120MW to the portfolio of
generation assets owned by SSE.


CCGT technology is likely to remain the benchmark technology for some years to
come and SSE has concluded that it should identify an option for an additional
CCGT plant, either at one of its existing power station sites or an alternative
'brown-field' site. In addition, SSE has identified the potential to replace the
existing conventional boiler at Peterhead power station with a new
state-of-the-art gas turbine. This would increase the modern CCGT capacity at
Peterhead from 1,180MW to the station's effective electricity grid limit of
1,520MW, delivering a higher thermal efficiency and annual savings of around
350,000 tonnes of CO2. The FEED (front end engineering design) study is now
getting under way and a decision on whether to proceed with the investment, in
which transmission charges will be an important factor, will be made next year.


Hydro and Wind

SSE is still aiming to have by the end of this decade around 1,000MW of hydro
and wind generation capacity qualifying for Renewable Obligation Certificates
(ROCs), although the achievement of this will be subject to the progress of its
various developments through the planning process. It already has in place, or
has secured consent to develop, 742MW of capacity.


This includes the construction of SSE's new 100MW hydro electric station, at
Glendoe near Loch Ness, which is progressing well. This development requires
investment of over £140m and it remains on course for electricity to be
generated from the winter of 2008/09. SSE believes there may be potential to
develop other large hydro electric schemes in the Highlands. Their development
would, however, require a planning and policy framework more attuned to the
critical need to maximise production of energy from renewable sources and reform
of the current regime for charging generators for the use of the electricity
networks.


It also includes the 236MW of wind farm capacity in operation, under
construction or with consent for development. SSE has eight other wind farm
proposals at various stages in the formal planning process, with a total
capacity of 708MW: Achany (40MW), which has been the subject of a Public Local
Inquiry which has now been completed; Blackcraig (69MW), which will be the
subject of a Public Local Inquiry scheduled for February 2008; Harrow's Law
(70MW), which will be the subject of a Public Local Inquiry on a date yet to be
agreed; Gordonbush (87MW), for which support (subject to conditions) has been
secured from The Highland Council in advance of the forthcoming decision by
Scottish Ministers; Fairburn (35MW); Waterhead Moor (132MW), Strathy North
(70MW); and Pairc (205MW).


The proposed wind farm at Calliacher (62MW), which SSE has an option to acquire
subject to planning consent being secured, has recently been refused consent by
Scottish Ministers, although a scheme at this site with a capacity below 50MW
could still be pursued via a planning application to the local authority. The
refusal of the 62MW proposal demonstrates that the process for considering wind
farm applications continues to be arduous and prolonged and there can be no
certainty as to if or when any particular development will receive consent.


The construction phase of the SSE/Talisman Energy UK Beatrice Wind Farm
Demonstrator Project in the Moray Firth is complete. Two 5MW turbines have been
successfully installed and the operational phase of the project is about to
commence. A review of the project has indicated that large-scale wind farm
developments in deeper water further from the shore could eventually be
commercial and a development of up to 1,000MW of capacity may be viable. There
are, however, significant technical and commercial hurdles and there is ongoing
engagement with the UK government and other interested parties in an endeavour
to overcome these.


Carbon Emissions Reduction Certificates

SSE has signed four agreements with GD Power Development Co Ltd (a subsidiary of
China Guodian Corporation, one of China's major energy companies) to support the
development of four new wind farms in north east China. It will purchase around
two million Carbon Emissions Reduction Certificates (CERs) over a period of five
years from the start of 2008.


Under the Clean Development Mechanism (CDM) established under Article 12 of the
Kyoto Protocol, countries - and therefore companies - can meet their carbon
emission reduction targets by purchasing CERs from CDM-approved carbon reduction
projects in the developing world. This was the first time that SSE has directly
acquired primary CERs from a project. As SSE stated when it entered into the
first agreement with GD Power Development, the large majority of its investment
in reducing carbon emissions will continue to be in the UK.


At the same time, climate change is a global challenge and supporting the
development of clean sources of energy in other parts of the world is a key
means of addressing it. SSE is looking for opportunities to expand its
activities in this area, with a focus on technologies with which it is directly
familiar. In line with this, it is entering into an agreement to support the
refurbishment of hydro electric stations in Brazil, with the purchase of around
160,000 CERs over a period of six years. This investment in hydro and wind
mirrors SSE's strategy in the UK.


Marine

In November 2006, SSE set out its intention to identify opportunities to invest
in marine energy and to establish a position as a leading developer of
marine-based electricity generation technologies, building on the work done by
its subsidiary, Renewable Technology Ventures Ltd (RTVL).


It has entered into an agreement to merge RTVL with Aquamarine Power Ltd, an
Edinburgh-based company which specialises in marine energy conversion and its
commercial applications, to create an enlarged marine energy company which will
retain the name Aquamarine.


The enlarged company, in which SSE is also making an initial investment of
£6.3m, and in which it will own 50% of the issued share capital, will initially
focus on delivering RTVL's Neptune tidal power device and Aquamarine's Oyster
wave power device for comprehensive testing at the European Marine Energy Centre
in Orkney.


Close Period

SSE is today entering its close period, prior to the publication on 14 November
2007 of its interim results for the six months to 30 September 2007. It now
expects to report results for 2007/08 as a whole which are slightly ahead of a
consensus of brokers' forecasts.


The onset of the close period means that SSE will not be purchasing its own
shares. Since 7 June 2007, the Company has purchased 16,010,000 of its own
shares for cancellation at a weighted average price per share (before costs) of
£14.3038 and an aggregate consideration of £229m. The purchases represented
1.86% of the called-up share capital of the company.


Ian Marchant, Chief Executive of SSE, said:

'The development, diversification and operational flexibility of our generation
portfolio has contributed significantly to the growth in profit before tax which
we have seen in recent years, and has again contributed to the very good
financial and operational performance which has been delivered so far in this
financial year.


'Between now and the end of the decade we expect to complete investments in
coal, gas, hydro and wind generation developments with a total value of over
£600m. This should give us almost 11,000MW of generation capacity, including
around 1,000MW of hydro and wind capacity qualifying for Renewable Obligation
Certificates.


'At the same time as successfully delivering these major investments, we need to
look further ahead and make sure that we have other investment opportunities
which support our long-term goal of reducing the carbon intensity of our power
generation while avoiding dependency on a single fuel or technology. We now have
such opportunities at the likes of Ferrybridge, Peterhead and in the Moray
Firth, in the emerging technologies of wave and tidal power and in the CER
market. While considering them, we will continue to urge the UK government and
other agencies to ensure there is in place a stable and durable policy framework
to allow investment decisions to be taken.


'For the long-term, investment in the development and demonstration of new
technologies for generating electricity from renewable sources is vital, and the
merger of SSE's marine energy business and Aquamarine will create a centre of
excellence in marine energy and accelerate significantly the process of making
these new technologies technically and commercially viable.'



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