SSE also said it was on track to beat its existing cost-savings target of 140 million pounds "by a significant amount".

Chief Executive Jim Forbes told Reuters that the target would be beaten "by March next year". He declined to put a figure on extra savings.

The all-British integrated power group that is the nation's main hydroelectric producer and became one of its biggest energy retailers this year looks set to be one of the few good earnings stories among UK power utilities this reporting season.

Most of its peers are suffering from low wholesale UK prices, high gas costs and trouble with overseas operations.

In early trading SSE's shares were up 1.8 percent at 672 pence, though analysts said the group's solid past performance and safe-haven status already had it fully valued at an earnings multiple higher than its nearest comparators Powergen and Innogy

"It was a robust set of results but at these levels its valuation looks stretched," said Jason Steed of HSBC.

TAPPING GREEN INCENTIVE

The renewable energy investment is aimed at tapping the government's 30-pounds-per-megawatt-hour Renewables Obligation Certificates (ROCs). These will be payable to generators of renewable energy by power retailers, who will eventually become obliged to source 10 percent of their power from renewables. The obligation kicks off next year at 3 percent.

The government has agreed that all hydroelectric power up to 20 MW in capacity will be eligible for ROCs after refurbishment. As a result, SSE plans to spend 250 million pounds over 10 years on its plants, many of which are 40 to 50 years old, in a set of upgrades that it also expects to deliver improved output and cost savings.

The remaining 200 million pounds will be committed to other renewable generation, mainly wind and possibly new hydro.

NETA TRADING BONUS

SSE's higher-than-expected profit was the result of a 15-million-pound profit contribution from its trading division - a direct result of the NETA new wholesale trading system in Britain.

NETA has allowed SSE to make money from switching its flexible generation plant on and off to meet market demand.

Forbes told Reuters that he was cautious about how NETA would work through the approaching winter, and was making no predictions about future profit contributions in this area.