Good morning, and thank you for joining us for our full-year results presentation. I'm joined by Chief Commercial Officer, Martin Pibworth, and Barry O'Regan, our Chief Financial Officer. We'd be delighted to take your questions after we present the results of what was a good year of delivery, as we continue to power sustainable growth across the group. First, I'd like to acknowledge the people behind today's results. SSE's ongoing success depends on the employees and contractors who deliver our strategy. Keeping them safe is our top priority, and we were deeply saddened by the loss of Richard Ellis, the employee of a contractor who died in an offsite incident in October last year. Our thoughts remain with Richard's family, friends, and colleagues. Our workforce is growing significantly to deliver our construction program, and we are redoubling efforts to ensure everyone on an SSE site gets home safely.
As part of this, we recently opened Scotland's first immersive safety training center. It will serve up to 7,000 colleagues and contractors per year over the next three years before being open to wider industry, and it reinforces the importance of embedding a strong safety culture across our activities. Before we get into the detailed financial and operational review, I'd like to take a few minutes to give a brief overview of the past year and tell you why we remain confident about our future growth prospects. This year has demonstrated three defining features of SSE: our track record of powering growth and delivering major projects, the resilience of our business model in a range of market conditions, and the continued strengthening of our growth prospects with multiple high-quality options to deploy capital where we can generate most value for shareholders and society.
As you will see, delivering the fully funded GBP 20.5 billion Net Zero Acceleration Programme P lus, NZAP Plus , as we like to call it, has been at the forefront of the last year. As we execute on this plan, we're also delivering increasingly high-quality, sustainable earnings that reflect the premium nature of our portfolio. You can see this in the strong EPS growth we're delivering, which is going from just under GBP 0.95 in 2022 to 158.5p today, and then onwards to 175-200p in 2027. That's a run rate of between 13% and 16% compound earnings growth per annum.
The upweighted investment in regulatory networks that we announced in November means that 55% of the CapEx plan is now allocated to the significant growth we see in those businesses, particularly transmission, which is one of the fastest-growing networks in the world. This investment provides real equity returns that are stable relative to inflation, and the regulatory mechanic means we receive an upfront, fast money earnings benefit from this increased investment, which also happens to be absolutely vital to the energy transition and the U.K.'s economic prospects. Crucially, we have largely locked in the supply chain, de-risking delivery. In renewables, we've selectively progressed organic projects across a range of technologies that provide strong risk-adjusted returns in line with our hurdle rates. As I say, this is high-quality, sustainable growth.
The majority of earnings are protected from market volatility, and a large proportion of debt is locked in at fixed rates. We have an optimized business mix that means earnings are resilient to a range of scenarios. As you'll hear from Barry shortly, we have every confidence we'll meet our 2027 earnings guidance and go on to create even more high-quality growth after that. That confidence and growth is underpinned by our unique value proposition. SSE is at the heart of the energy transition, which is one of the great structural growth opportunities of our time. Renewables, flexibility, and networks will be the three key pillars of the future energy system. Across these essential technologies, we have a premium portfolio of projects, giving us a wealth of options to deploy capital in attractive markets and at good returns.
As you can see with networks and renewables in particular, we have two powerful growth engines that will deliver high-quality earnings for many years to come. Alongside this, we have a pipeline of options to harness the value of flexibility as this comes to the fore. All this means SSE is in the right place at the right time with the right business model to deliver strong growth, maintain a robust balance sheet, and create significant value for shareholders and society. It's a very exciting time to be in energy, and I believe SSE is uniquely placed to thrive. I'll now turn to Barry to give us an overview of the financial results.
Thank you, Alistair, and good morning, everyone. Over the next few slides, I'll take you through what was a very resilient financial performance by the group in the last year, enabling us to invest in the strong growth options we have across the portfolio. I'll then move on to the outlook for the year ahead before explaining our confidence in delivering our 175p-200p adjusted EPS range as our pipeline of projects converts into high-quality, sustainable earnings. Let me start with a summary of the 2023/2024 financial year. The group delivered adjusted operating profit of GBP 2.4 billion, 4% lower than the prior year.
This solid performance again shows the resilience of our business model, coming as it did despite the impact of reduced market volatility and inflationary pressure, which, combined with unfavorable weather, is reflected in the individual performance of our businesses. And with around 90% of the CapEx invested in networks and renewables, it was especially pleasing to see those businesses grow earnings by GBP 200 million, a collective increase of 16% year-on-year. Adjusted operating profits in our regulated networks businesses reduced by GBP 63 million during the period, mainly due to timing factors, which I will outline in the coming slides. With our markets-based businesses proving their resilience despite the continued normalization of power prices. This strong performance in challenging conditions meant that adjusted EPS was 158.5p, delivering on the upper end of the guidance provided in our pre-close statement.
As Alistair has said, we continue to make progress on the delivery of our flagship projects by investing GBP 2.5 billion this year, sowing the seeds for strong earnings growth to 2027 and beyond. SSE's long-standing hedging approach has proved a great asset over the past two years, providing stability and confidence in future earnings. The remeasurement of these hedges, which are unrelated to the current financial year performance, has created a positive fair value movement, mainly due to falling commodity prices. These same falling prices are also reflected through the impairment in Triton Power, recognizing the interim results, as well as in gas storage, both of which follow a period of strong operational cash flows. Finally, we have taken an impairment on our non-core investment in Neos Networks, which reflects the wide range of reasonable possible valuations given difficult trading conditions.
These non-cash adjustments mean that reported operating profit is almost GBP 200 million higher than the adjusted numbers we focus on as the truest indicator of underlying business performance. Turning to SSEN Transmission's performance, headline adjusted operating performance increased by 13% to GBP 419 million. However, when normalized for the minority sale in November 2022, this is equivalent to an underlying earnings growth of 38% from the prior year. This was mainly driven by increases in allowed revenues under RIIO-T2, as the business starts to deliver on its long-term investment program, combined with a positive timing impact from tariffs. Partially offsetting this, are additional costs from a higher head count, as well as higher depreciation charges as the business ramps up its substantial growth program. SSEN Distribution's operating profit was down 29% year-on-year to GBP 272 million.
As we have flagged before, this is as a result of inflation in the cost base not being reflected in the tariffs for the regulatory year, which were set back in December 2021. Clearly, this is a timing difference that will reverse and allow for significant earnings growth in FY 2025 as tariffs catch up with the cost inflation seen over the past two years. In renewables, we were delighted to announce Seagreen reaching full commercial operations during the year, resulting in a 527 MW net capacity increase to the fleet, and I am even more delighted to see those earnings come through and helping to drive the uplift in operating profits for offshore wind. Onshore, the Scottish fleet was impacted by reduced wind speeds, which when combined with 10 named storms, resulted in 6% lower output year-on-year.
However, the fleet did benefit from a higher hedge price going into the year, which more than offset this impact. Together, these factors meant that SSE Renewables operating profit increased by 48% year-on-year to GBP 833 million, and we see substantial future earnings growth coming as we continue to deliver our renewables pipeline. Following a highly volatile year for the thermal and gas storage business in FY 2023, we expected earnings from these businesses would begin to normalize, and this has happened, with thermal delivering operating profits of GBP 819 million in the period. We know that flexibility has played a critical role supporting both the GB and Ireland energy systems this year, and it will continue to be a valuable part of the future energy system.
As Martin will cover, this is reflected in recent strong Capacity Market auction results for future delivery years. So while we do expect earnings to continue to normalize from the levels seen over the past few years, we remain confident in achieving strong remuneration from these businesses in the future when comparing to historic levels. In our customer business, we are seeing supply profitability return to the level we would expect in more normal trading conditions as we price competitively and extend our offerings in the GB and Irish markets. The business also saw benefit from increased income from wind farms contracted to electricity, and this profit continues to support group investment in renewable asset delivery.
In GB and Ireland, we continue to price responsibly and support customers as best we can by passing on tariff reductions, establishing a GBP 15 million customer support fund in GB, and recently launching a EUR 5 million community fund in Ireland, supporting homes and businesses. The future strength of this business can only be a good thing for society, while reinforcing the value customers offer to our portfolio. I won't go through all of the numbers in this slide, which are relatively small in the context of the wider group. In summary, though, lower SSE Energy Markets profitability reflects lower optimization opportunities in a less volatile energy price environment, while continued investment in our SSE Enterprise and Neos Networks businesses means they continue to incur small planned losses.
Finally, below the line, finance charges fell, reflecting in part the interest on construction projects being capitalized, and the tax rate was stable, although we expect this to fall in future years, as I will come on to. Dividends remain an important part of rewarding our shareholders, and in line with the dividend plan set out this time last year, we are proposing a full-year dividend of GBP 0.60 per share. The strength of SSE's balance sheet is key to our ability to ramp up investment in high-quality, long-term infrastructure as we deliver on the NZAP Plus. Adjusted net debt increased to GBP 9.4 billion at March 2024, with 93% held at fixed rates, which provides stability and predictability. This represents a net debt-to-EBITDA ratio of only 3x, well below our target range of 3.5x-4x.
We continue to expect to be below the ceiling looking out to 2027, meaning that the GBP 20.5 billion NZAP Plus investment is comfortably funded within existing means, and this is recognized by our strong investment-grade credit ratings. Before I hand over to Martin, let me spend a moment on the outlook for this financial year, as well as the update on earnings progress to 2027. Given some of the timing differences seen in our regulatory businesses and the continued normalization of power prices over the last few months, we have set out here some of the moving parts we expect for each business in the forthcoming year. The most significant are in distribution and thermal. In distribution, operating profit is expected to more than double as tariffs catch up to recover the cost inflation over the last few years.
In thermal and gas storage, profitability is expected to fall significantly year-on-year as a result of lower power prices, though, as I've said, profits are expected to remain above historical averages. But even in a low-case volatility scenario with limited extrinsic value, we would expect this business to achieve at least GBP 200 million operating profit, with significant upside potential. Across the other businesses, timing differences in transmission means profits are expected to be lower. Whereas in renewables, we expected higher hedge prices, combined with capacity additions from Viking and Dogger Bank, adding to a full year's contribution from Seagreen, will drive a material increase in expected operating profits year on year. As ever, final performance will be dependent upon market conditions, plant availability, and weather, with the seasonality of earnings preventing more specific earnings guidance at present.
Therefore, consistent with the approach we have taken in the past, we will look to give specific guidance later in the financial year. As with any long-term plan, the expectations and assumptions for each component will change over time to reflect an ever-evolving environment. The normalization of market prices and increased investment opportunities means we have rolled forward our medium-term operating profit guidance for each individual business. You'll notice the average operating profits we expect are now higher in transmission, fully reflecting the GBP 2.5 billion additional investment announced in November, and lower in renewables and in thermal, updated to reflect the prevailing market environment. While our assumption on cost of debt before capitalization remains unchanged, the average adjusted effective tax rate has significantly decreased, which reflects both the upweighted investment plan and the extension of capital allowances announced after our interim results.
The profit guidance for individual businesses will naturally change over time. However, our overall outlook reflects a diverse and resilient business mix, with increasingly high-quality earnings that is capable of evolving to deliver in a range of different market scenarios. Our main focus is on delivering our 2027 targets, and as I will spell out in the next slide, we remain very confident of delivering the EPS growth we originally set out. Our confidence in that 175-200p guidance is based on the strength and resilience of our growth, given the significant and achievable investments we see across networks and renewables. In networks, we have already secured with Ofgem capital programs, which will see SSE's annual CapEx more than triple versus today, generating significant fast money revenues upfront, alongside significant long-term RAV growth.
When combined with a doubling of renewables output across the plan and a reduction in tax rate from the extension of capital allowances, we are sure these drivers will offset any impact on merchant elements of our businesses from the prevailing energy commodity price environment. Where we end up in that range will depend on our ability to unlock further growth, whether through additional regulatory investment or through renewables projects that have yet to take a final investment decision. And don't forget that our 6.5 GW flexible fleet stands ready to provide additional value should prices rise or volatility continues. First and foremost, though, we will maintain our capital discipline. As I said in my first results presentation back in November, SSE will always choose value over volume.
In closing, I'll just reiterate that we have every reason to believe our diverse, yet balanced mix of businesses will deliver our 175-200p EPS range for 2027. I'll now pass you over to Martin to talk through operational performance for our energy businesses.
Thank you, Barry, and good morning, everyone. 2024 has been dubbed the year of elections, and while politics can sometimes accentuate differences, there is widespread acceptance of one fact: electricity is the future, and society is going to need a lot of it. Almost every industry over the long- term will need to increase their electricity demand, whether they are looking to decarbonize, grow, or evolve. Whether it's through the steady long-term decarbonization of heat and transport or the rapid near-term expansion of data centers to support the growth in artificial intelligence or cloud-based applications, demand for our core products is only getting stronger. And we are seeing for ourselves this increased demand for green electricity from corporates, which we hope to convert into contracts that will support our existing pipeline, as well as leading to new projects.
So, given its inevitability under every future energy scenario, the structural shift to electrification is a significant growth opportunity, and it is one which SSE is uniquely placed to benefit from, given our market presence, optionality across the value chain, our ability to deploy capital at good returns, and our focus on delivering high-quality, sustainable growth. Basically, we can and will go wherever the value moves to within the energy transition. And this is due to our business mix. As Alistair and Barry have both said, this is a highly resilient business that is deliberately designed to weather all scenarios. The portfolio is already adapting well to what is a calmer pricing environment after recent volatility. Of course, for the unregulated businesses, there will always be uncertainty over wholesale prices, which we mitigate in part through the renewables hedging activity you can see here.
We have also updated our assumed long-term power price for unhedged merchant renewables, which is now 65 GBP/MWh. But as Barry covered, this is not materially impacting our 2027 EPS targets. It is also worth noting that these power prices are set against a gas price at a three-year low and contain a U.K. carbon price, which we believe is unsustainably dislocated from the EU equivalents, a fundamental unlikely to persist. Furthermore, this power price does not include other income streams for our renewable assets, which have become more favorable, such as the value of green certificates, ancillary services, or indeed capacity mechanism payments. Turning to thermal, as Barry has outlined, while power prices are normalizing, market dynamics mean we expect profitability to remain above historical averages.
Lower prices mean we naturally see lower intrinsic value in selling power when compared to the previous two years, but this is partly compensated by greater revenues from the fleet's reactive or extrinsic role as it flexes to capture value from short-term demand. While it may not be as visible, market volatility does remain high, even at these lower price levels. In Ireland, the higher price environment has continued, with flexibility at a premium, and our assets are well- positioned to help provide security of supply. In both GB and Ireland, earnings will continue to be supported by Capacity Market auctions, which achieved record levels this year. This reflects the ongoing medium-term concern over security of supply, and these strong auction results provide a stable underpin for our thermal profitability outlook.
In summary, the diverse and complementary revenue streams offered by the market-facing businesses will continue to add value in a range of scenarios. Let's now turn to renewables. We've consistently said that individual period-on-period wind speed variations matter less than long-term averages when it comes to value creation. Scotland saw lower wind speeds than prior year, and the 10 named storms over the key winter months provided our business with a number of logistical challenges. While onshore wind volumes were negatively impacted, our team rose to the challenge by maintaining high levels of availability despite the difficult operational conditions. For offshore, while the business also saw the impacts of lower wind speeds, the overall performance was assisted by an uplift in our generating capacity, which meant that overall volumes were up year-over-year.
With 2.8 GW under construction, combined with a full year of operation from Seagreen, we expect that overall renewables volumes will double from the current financial year's output through the next few years. While a number of these construction projects will run merchant in the period to 2027, this is just a timing issue, as auction successes mean that around 50% of this volume will be contracted under long-term fixed-price contracts, delivering high-quality, predictable earnings. In the last year, we made excellent progress towards our 2027 targets. Seagreen reached commercial operations in October, and performance so far has been ahead of expectations. Meanwhile, work at Viking on Shetland has also gone very well, with commercial operations expected this summer, ahead of schedule and budget.
It will be one of Europe's highest-yielding onshore wind farms and is fully contracted through attractively priced CfD contracts. Along with Dogger Bank, these high-quality, nationally significant projects give us a clear pathway to adding around 4.5 GW of capacity to our renewables portfolio over the next three years. Meanwhile, in Southern Europe, we are advancing projects with construction of the 64-MW Jubera onshore wind farm in Spain now underway, following on the heels of Chaintrix in France. We expect to take FID on several further projects over the next 12 months as we build out, with discipline, our 2.3 GW secured pipeline of onshore wind and solar projects across Southern Europe. So, as you can see, we are building multiple large-scale complex projects, and the experience we have in delivering them is a real differentiator.
Progress on projects like these isn't always linear, as we have seen recently at Dogger Bank, where we are building the world's largest wind farm. We have made real progress on that site over the last 12 months, with all 95 monopiles and transition pieces installed, around 70% of the inter-array cables in place, and 16 turbines either part or fully installed. We have had a number of short-term delays caused by vessel availability, poor weather conditions, and minor snagging issues, which have prevented us from making the progress we originally expected. But the installation vessel is back on site, and with an expected run rate of around 10 turbines a month over the summer months, we are continuing to install turbines at a faster rate.
With the offshore HVDC substation fully commissioned, these turbines will start exporting power and generating revenue as they are installed and commissioned. With project contingencies and the benefit of a 15-year index-linked CfD contract in place, we still expect this project will deliver full value in line with the mid-teens equity returns we anticipated at FID. The key point is that while Dogger Bank is clearly a complex project, we have an experienced project team who are targeting the first half of the 2025 calendar year for delivering its full capacity of 1,200 MW. When combined with a load factor approaching 60%, this single phase will generate around 6 TWh of clean electricity each year. The pipeline of projects that will keep this renewable growth engine running beyond 2027 keeps growing and converting.
As well as our 605 MW of U.K. CfD awards in September, we are progressing our close route to market in Ireland and continue to make additions while applying the capital discipline that Barry has already focused on. Seagreen 1A is eligible to bid for CfD in the coming allocation round, and we expect a decision on Berwick Bank's planning consent this year. We believe ultimately that both prospects will be contracted into the U.K. auction mechanisms, and we are conscious of achieving appropriate value for these organic options. In onshore wind, Yellow River in Ireland is on track for summer completion, and our JV with Bord na Móna has opened up the potential for up to 800 MW of onshore wind over the next decade with a credible, delivery-focused semi-state partner.
Further afield, we have developed an early-stage opportunity to deliver over 900 MW of solar PV in Poland, and we continue to closely monitor developments in Japan, where the government has recently launched its Round Three offshore auction. These opportunities all benefit from the strong local teams and partnership arrangements we have on the ground. Our international activity remains disciplined, focused on growing from the footholds we have created in a highly selective, measured way, while competing in attractive auctions with local partners. Let's now turn to flexibility, which is one of the key building blocks of the future energy system. Policy has not moved as quickly as we'd like in this area, but progress is inevitable, and we are set to benefit across a range of technologies. We've already highlighted how the capacity mechanism is beginning to reward the value of availability.
This year, we have seen significant delivery in our battery portfolio, with our first commercial operations at our 50-MW project at Salisbury. But this is just the start. We have a strong battery pipeline, including 620 MW already in the construction phase across Ferrybridge, Monk Fryston, and Fiddler's Ferry. Meanwhile, final commissioning is underway at our 55-MW joint venture energy from waste facility at Slough. Commercial operations are expected this summer ahead of schedule. We are also moving closer to a final investment decision on 450 MW of HVO new-build capacity in Ireland at Tarbert and Platin, which will provide vital security of supply in that market, and we are continuing to progress exploration work at Coire Glas.
After much encouragement from us, the U.K. government is now actively consulting on a cap and floor mechanism that would provide vital revenue stabilization for long-duration storage projects like this. The Commons Science and Technology Committee has also recently been encouraging them to, quote, "Get on with it." Similarly, we remain well-positioned in the cluster sequencing processes through Peterhead in the Scottish cluster, with options for Keadby through the East Coast or Viking clusters. Ultimately, we have a range of exciting options in a range of technologies, all with robust industrial logic, consistent with national net zero ambitions. I'll now hand over to Alistair.
Thank you, Martin. Let's now turn to our networks businesses, starting with the transformation underway in distribution, which has a crucial role in enabling increased electrification and digitalization of the economy. As a result of digital and load growth, we expect to see an increase in investment that stretches out for at least two decades, similar to the growth that is currently being seen by transmission, which I'll come to shortly. The regulator is beginning to understand the need to adapt the connections regime in parallel, and we are pleased with how it is then starting to work with us to embed strategic net zero-first investment into the regulatory framework. This is encouraging from both a societal and business perspective, and we expect to use the uncertainty mechanism process extensively as growth comes through ahead of ED3.... Building more generation capacity is not the only solution to meeting electricity demand.
We continue to lead the way on delivering demand-side system flexibility, securing 700 MW of flexibility this year. And to maximize these opportunities, there is an extensive business transformation underway as we optimize data and processes ahead of future price controls. Ultimately, we aim to unlock future value in distribution by building a smarter, more agile, and more technologically advanced business that can thrive at the heart of net zero. Like distribution, transmission stood up to the 10 named storms well, with continued strong performance in the Energy Not Supplied incentive. Excellent project delivery continues, with flagship RIIO-T2 projects making strong progress. The pioneering HVDC link to Shetland is in place and in testing, despite difficult subsea conditions, with a view to energization during the summer. Similarly, all circuits on the first phase of our 400 kV Northeast Scotland reinforcement are now energized.
We are well on course to deliver our RIIO-T2 goal of connecting 10 GW of renewables and powering greater than 10 million homes with green power by 2026. This record of delivery is a good launchpad for the next significant step-up in growth. The large onshore transmission investments and accelerated transmission investment, or LOTI and ASTI programs, as they are known, will see around GBP 20 billion of critical grid upgrades delivered. These are all must-build transmission projects, no matter the energy scenario considered, and delivery is already included in our license conditions. And as I said earlier, crucially, we have largely locked in the supply chain to support this high-quality growth. LOTI will connect the rest of the main Scottish island groups with the mainland for the first time ever, with construction programs due to start in 2024.
There remains some final consents required from the Scottish Government for Argyll and Skye, and more pace is needed here. The regulatory need is clear, and we remain confident of positive news soon. The eight ASTI projects also all have a clear regulatory need, and with the onshore projects at various stages of pre-planning, we are currently undertaking one of the largest public consultation processes ever seen in Scotland. The importance of this consultation cannot be overstated. While the need for the projects is overwhelming, we must ensure they are delivered in a way which is sensitive to the views of local communities and minimizes impact. At the end of last year, we were pleased to announce a range of changes to our plans following feedback received during consultation, and we'll continue to listen and adapt plans where we can to best balance the needs of all stakeholders.
With community benefit now being brought forward by government, exciting investments in manufacturing facilities are likely to be unlocked. Offshore, our ASTI projects are all progressing well, too, and the EGL2 subsea link that will connect Peterhead to Drax has now been approved for over GBP 4 billion of spend. We've also made good progress on EGL2 in the year, with marine licenses and other key contracts secured as we target completion in 2029. And this is all high-quality growth, which, when combined with distribution, means we're looking at greater than 15% networks RAV CAGR across the NZAP Plus period. With their steady regulatory earnings and high-performing infrastructure, electricity networks have long been the sleeping giant of the energy system, but the impending surge in demand for them has changed all that. The world is increasingly appreciating the crucial role they will play in the future.
Transmission is leading the way with operational excellence and growth prospects, but we expect distribution to follow suit with its own transformational investment needs. Together, they are key enablers of net zero and engines of growth for SSE, delivering sustainable index-linked earnings into the 2030s and beyond. Indeed, we have already seen the potential for more than GBP 5 billion of additional investment in transmission being flagged under the system operator's Beyond 2030 plans, the second Shetland link at the heart of this. This is, I'm sure you'll agree, a world-class growth opportunity, and it's one of many. SSE is facing a structural, generational growth opportunity, and we upweighted our CapEx plans in November to harness it. The plan that's summarized on this page is our roadmap for powering sustainable growth. It is a fully-funded plan with the three pillars of renewables, flexibility, and networks at its heart.
It is agile, able to pivot capital to those technologies that provide the best balance between risk and returns, and it is based on a business mix that gives us natural resilience to a range of scenarios. Our investments show a laser-like focus on the Paris Agreement, and our clear science-based targets have helped support a record low year for our carbon emissions. And Barry outlined earlier, these continued investments in essential infrastructure will grow EPS to between 13x-16x compound annual rate over the period to 2027, as existing capital projects are delivered over those years. Finally, with annual dividend growth of between 5% and 10% to 2027, this plan also balances our commitments to shareholders with our ambition to invest more in the assets that will be needed to reach net zero.
While today is mainly focused on medium-term growth, we're a long-term business with an eye on the future. We have remarkable growth in our core regulated networks businesses, a renewables pipeline with world-class opportunities in attractive markets, and a range of flexibility options. We are on track to deliver sustainable value to 2027 and beyond. So to conclude, SSE has put itself in the right place with the right assets at the right time. As you've seen today, we have a strong record of delivery with a balance sheet strength to pivot or upweight investment into attractive opportunities whenever they present themselves. The resilience of the SSE group and our high-quality assets gives us the ability to create sustainable long-term value. The wealth of organic options and capabilities in highly attractive markets means we have lots of opportunities for disciplined investment in future growth.
It is, I'm sure you, you'll agree, a massive opportunity and a compelling story. Thank you, and we'll be delighted to take your questions now. I'll hand over to the operator.
Thank you. To ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one on your telephone and wait for your name to be announced. Thank you. We are now going to proceed with our first question. The question comes from the line of Robert Pullen from Morgan Stanley. Please ask your question.
Hey, good morning. Thank you. I'll just stick to one question 'cause I'm sure there'll be, there'll be lots, and, and, I'll leave the nitty-gritties to some other people. So, given a new theme has emerged this year for power systems, and that is data-centered demand, may we ask SSE's thoughts on the subject and whether there is a potential beneficiary for the company, and if so, how? Thank you very much.
Okay. I'll start, and Martin may add something as well. I think we've all seen reports of AI-driven search requiring something like 10x the power of non-AI-driven research. That's obviously a clear tailwind for our businesses. I think generally, since the Ukraine war, we've seen consumption of energy across Europe come down, but I think that's coming back strongly, and we see that particularly in Ireland. And in Ireland, we're at the behest of a green minister, building emergency generation there to try and keep pace with demand for things like data centers, which are obviously powering much of this change. And indeed, the business over there recently signed a contract with Microsoft.
So I think there are real tailwinds for us, around demand, and I think AI is part of that. I see that certainly in networks. That'll give us an opportunity there. And Martin, I don't know whether you want to add anything.
Yeah. Morning, Rob. Yeah, I mean, there's been a couple of interesting reports just this week, actually. So, one report talked about EU power demand maybe up 40% on a combination of things in the next 10 years, but obviously including data centers and AI requirements. There was another report I just saw yesterday actually talking about the possibility of tech companies maybe paying premiums to access security, supply, and green megawatt hours. And I think we're starting to see some of those trends coming through in some of the conversations we're having. I guess the interesting part of this is, firstly, it's constructive from a macro perspective for demand. That's gotta be good for the price of the products we ultimately sell.
But also on a more specific basis, we're engaged in conversations with multiple companies in particularly GB and Ireland about the potential for writing CPPAs for those tech companies to cover off their increasing demand use. And ultimately, that's got to be good for us in terms of getting our projects away and getting good remuneration underneath potentially new build additionality. So we see it as a positive.
Thank you.
Thanks very much.
The question come from the line of Mark Freshney from UBS. Please ask your question.
Hello. Thank you for taking my questions. I have two. Firstly, on Dogger Bank. We've seen, working offshore, your peers' costs can very quickly escalate as the cost of that marginal day of a vessel is extraordinarily expensive. So my question is, how confident are you that the GBP 3.2 billion and the first half 2025 start date for... or completion date for Dogger A is, are the right numbers? And secondly, a question also for Martin, I guess, is just on the thermal fleet. I mean, you've got an immense number of very short-duration batteries coming on with capacity agreements by 2028. Demand is weak, notwithstanding AI. I mean, is it, you, you know, you, you know, you've remained convinced of the value of these assets, but clearly, they've had a big downgrade.
What gives you confidence that these assets can make good money, better than the minimum GBP 200, in the future? Thank you.
Yeah, sure. Okay, well, we've only just said it, so hopefully, we still remain very confident in Dogger Bank, but I'm sure Martin will provide a bit more color.
Yeah, so maybe, Mart, let's start with the Dogger Bank supply chain point. I mean, obviously, there's a lot of things that go into project economics and CapEx moving around on major complex projects out to sea, won't be a great surprise. And you're right, other companies have obviously reported the same. We have always said that for Dogger Bank, we have taken a cautious approach, allocated correct risk contingencies and risk pots to the project, which reflects our very deep experience of the complexity of these projects elsewhere, and that continues to stand for Dogger Bank. And obviously, there's also lots of other ups or downs within the project, not least including the fact that, we've locked our financing in at 2.5% and didn't sell the indexation.
So we have other benefits coming through that entire project. The key point is we have an experienced team delivering a complex project. We've outlined today how we expect that project to proceed, and despite all of the different variances that we've had, we've reported, we are still projecting returns, with confidence will be mid-equity, project returns, mid-teens, sorry, mid-teen equity returns, and which is exactly what we said when we took FID three years ago. Then on the thermal, thermal question, yeah, so, I mean, just on thermal, I mean, essentially there's four income streams for thermal.
There's the capacity mechanism, which clearly values are rising as we go forward, and indeed, in a T-4 mechanisms for GB and Ireland, we have secured over GBP 500 million of income, so that's locking in thermal value there. Then there's the intrinsic spark spread, which is the value of just running into normal and hedging into normal market conditions. Clearly, that's fallen a bit, which is behind some of the numbers you've seen today. But also, there is the third income stream and the fourth income stream are the option value, the flexibility you referred to in your question, and the balancing mechanism revenues we can make out of those plants. They are the least bankable elements of any kind of thermal asset income model.
And therefore, we've kind of guided essentially to a floor of what we can see, i.e., the intrinsic, but cognizant of the fact that that option value can expand very, very quickly. And I think your question is: Do we see some of that flexibility being outcompeted by other batteries? I would point to a whole bunch of other things that are happening on the market. Firstly, we're seeing obviously the demand lift we talked about in the first question with Rob. Secondly, as part of that, we're also seeing a change in price elasticity in normal usage, which is constructive. We're expecting clearly coal closures as well over the next two, three, four years across Europe. There is obviously a dependence upon nuclear availability in France, which has slightly been unreliable in the past.
On top of that, in just GB, we are dependent upon the reliability as a country on about 17 GW of F-class CCGT fleets, which is coming kind of if not towards the end of its life, it's certainly been around for a long, long time. And so in those market conditions, there is clearly the possibility of dynamics which require an increased response from our flexible fleet, which is why both Barry and I made it so important to point out the significance of our volume and indeed, the reliability of that flexibility should it be required by the market.
Okay, thank you.
Thank you, Mark. Next question, please, operator.
We are now going to proceed with our next question. The question's come from the line of Deepa Venkateswaran from Bernstein. Please ask your question.
Thank you. I have two questions. The first one is actually a topic we've not discussed in a long time, which is customer solutions. So you've had a strong performance this year, and you've pointed to similar levels in the future. Can I ask what was the assumption in the previous plan? And implicitly, how much is customer solutions kind of offsetting the downgrade in the thermal earnings, you know, from the GBP 500 million average to GBP 400 million? Can you just help us understand what you were assuming before and, you know, how much is the upgrade? And secondly, just on FY 2027, Barry, if I may just ask you a question. So, of what is included in that guidance and what's not.
I know you've highlighted that there's 2 GW of projects yet to be FID-ed, but realistically, how much of that can come by 20...? Could you give us an idea of, you know, what are the upsides if we include the 2 GW? And presumably, those 2 GW are included in your capacity target, or some portion of that is included in your capacity target and output target for 2027. Maybe if you could just elaborate on that. Thank you.
Okay. Deepa, I'm just going to repeat your questions 'cause there was some slightly poor sound quality there. So I think the question was customer profits are up and thermal profits are down, and how much can that make up for thermal profits? I think that was the first question. And then the second one-
was around the last portion of renewables, which are in our targets for financial year 2027. And I suppose one of the key things there, and I'm sure Barry will cover, he'll do both of them quickly, is you know, how much money or how much profitability is really coming from those last few megawatts that get delivered at the tail end. Is that fair as the questions?
Yeah. Yeah.
Thank you.
Yeah. No, no. Hi, Deepa. Look, in terms of the renewables projects, that last couple of gigawatts, in reality, that's all very much back-ended. So if that comes into the plan, it will be very much back into the back end of 2026, 2027. I think the key thing I'd call out is to get in, you know, for us to deliver in the 175- 200p range, we do not need all that, all those projects to come through. You can see in the back of the, of the appendix where we have a number of projects in late stage development. We will expect a number of them to come through, but we absolutely do not need all of them to come through, and ultimately, all those projects will need to meet the appropriate hurdle rates to come through.
But that doesn't impact whatsoever the 175p-200p guidance. In terms of the customer's business, it's probably, you know, tens of millions higher maybe than the original plan, so it's not a natural huge offset against the thermal piece. I think when you look out to 2027, the big movers, Deepa, are around the transmission business, clearly where we'd have the opportunity to invest a lot more into that business, which, you know, we've called out the GBP 2.5 billion additional ASTI spend coming through, where we've, you know, we've agreed to projects with the regulator, supply chains in place, and we've all that fast money and return on RAV coming through. In those projects, obviously, we're doubling the renewables capacity, so that will co- or output, so that would be coming through as well.
And then the tax and the capital allowances, clearly, that's a big upside when that capital allowance was extended from 2026 into 2027, giving us an overall, lower tax rate as you go out. So I think those pieces are much more important when you look at the 2027 than, you know, the customer's thermal mix. And maybe the last point that I'd call out to 2027 is the quality of earnings. As you look at that 2027 number now, there's a lot more coming from the predictability of the transmission business as opposed to the merchant pieces.
Yes. Okay, thank you.
Thank you. Operator, next question, please.
We are now going to proceed with the next question, and the question's come from the line of Ajay Patel from Goldman Sachs. Please ask your question.
Good morning, and thank you very much for the presentation. I wanted to ask a little bit more on the guidance on 2027. So if you look at the changes, you know, your transmission profits, if you take into account that the shape would be significantly up with 2027, thermal, you know, is a bit down, but there's a tax improvement of around 4% on the effective tax rate. Consensus sits around the bottom end of your range of GBP 1.75-GBP 2. I'm just thinking, with all the changes that you announced today, does that look conservative? Because it feels like the range of outcomes here could be quite a large amount of that guidance range that you have.
I'm just wondering, is the top end even possible at the moment, or do you see the whole range as possible, depending on the outcomes on current market conditions? Any sort of color around that to help maybe focus in consensus a little bit to what you've said this morning. And then, just on 2025, you know, there's a significant step-up in revenue on the distribution side of the business coming into this financial year. I just wanted to understand how much of that drops through to profit. And, 'cause it seemed to imply maybe a bit more than the 2x number that you guided towards. Given it's quite a key variable to the earnings overall, any sort of color there would be really helpful.
Okay. Uh-
Okay. Thank you, Ajay.
I'll let Barry go on, and I'll give any business commentary as well.
Thank you, Ajay. Look, I, I'll just deal with the FY 2025 distribution one first. I think what we're seeing is at least 2x overall profits in the year. So I think, you know, so that hopefully will give you some comfort in that. So looking out to 2027, so I think the key point is, you know, we keep... we're keeping the 175- 200p guidance, extremely comfortable in that. Updated the power price, base load price from GBP 85 to GBP 65. But what we're saying is, you know, we've now baked in that full upside from transmission, the tax coming through as well.
You know, when you even when you look at the thermal business, it was always underpinned in 2027 by a large capacity mechanism of over GBP 300 million as well. So I think the key thing for me, as I look out to 2027, is that the quality of the earnings, I think, has improved. We now have much more coming through in that predictable transmission business, as opposed to coming through in the merchant piece. So that's certainly how I look at it. Clearly, of course, there's potential to outperform that, depending on where market conditions at the time, whether in terms of, you know, additional investment opportunities we may have, as they come through, but, you know, we remain very confident in that 175p-200p.
Okay, and I think I'd just say from a, you know, a business and operational perspective, you know, Barry's managing the risk and counting the cash as it comes in. You know, Martin and I are gonna be heavily focused on delivering towards the top end of that and making sure Barry's got a smile on his face at the end of 2027. There's no doubt about that. And just on the distribution, given that, Gregor neatly let me chair distribution, I can say, although costs may be up a little bit, I'd be expecting Chris and the team there to see a big proportion of the revenue increase drop through to the bottom line.
Okay. Thank you very much.
Thank you. Next question, please, operator.
We are now going to proceed with the next question, and it comes from the line of Jenny Ping from Citi. Please ask your question. Your line is opened.
Hi, thank you very much. I've got a couple of questions, please. Firstly, just in terms of the 2026, 2027 target and the assumptions that goes behind it, can you talk a little bit about what is the ROE you assume to get to that GBP 500 million ET numbers, given that we don't really have any clarity on ET3 yet? And you talk about accelerating schemes for fast money. What sort of fast, slow money split do you assume? Secondly, on renewables, I was intrigued that you have got to 19% CAGR, only 1% lower than what you had before, based on GBP 65, and the previous was GBP 85 power price. So what, what's the offsetting moving part, effectively, to get your CAGR to remain broadly unchanged?
And then, thirdly, just in terms of nearer term guidance, I guess, I mean, looking at your quality guidance, is it fair to assume that earnings are going to be relatively flat year-over-year, 2024, 2025? Is that a reasonable assumption? Thank you very much.
Okay, look, I think, I think they're mainly for bad, but just as a little bit of poor quality there, I'll just check. Your 2026, 2027 was around ROE in transmission and what, and what we're thinking, given that there's gonna be a new price control on the, on returns, next from the GBP 65-GBP 85 per megawatt hour, and what's making up for that, which I think Barry said is kind of transmission, and then the near-term guidance, 2024, 2025. I think Barry will probably tell you what he's already told you, and what we told you in the script, rather than just give you the number to plug into everybody's model.
I'm sure people obviously feel that would be easier, but I think giving you color on the businesses is what we're trying to do here. But Barry.
Yeah, hi, Jenny. Maybe just deal with the transmission one first. So we're saying on average, you know, GBP 500 million per annum. You know, clearly, you wouldn't expect us to get into the detail of the assumptions we're making, for RIIO-T3, which will be the first year would be in 2026, 2027. But what I would say is if you look at the CapEx profile, it very much ramps up towards the back end, and obviously, then what assumptions you make on fast money, et cetera, coming through. So, you know, you really see, you can see you can expect the shape of the profits, from that.
In terms of the renewables CAGR going from 20% to 19% and the power price going from GBP 85 to GBP 65, I think there's a few couple of pieces I'd call out. One, you know, a lot of the renewables projects don't have, aren't exposed to merchant. So obviously, for the CfDs, you have the FITs, you have the ROCs, et cetera, coming through there. Also, you know, before the price was GBP 85, base load price, clearly, wind capture price would have been slightly lower than that. But ultimately, anything above GBP 75 was getting hit by the energy generator levy, which probably took away about half of the upside just from that, that tax alone before corporation tax. So the overall impact wouldn't be as big, as you'd expect it.
And then your last question was on, you know, is guidance flat? I think what I'd say is, look, we've tried to be as helpful as we can, in terms of giving directional guidance in each of the each individual business units. Clearly, we're expecting a big upside in distribution and renewables, thermal clearly coming down, given where the market is. But, you know, we've just delivered a very strong set of results this year, and I remain very confident we'll deliver another set of strong results this year, in the current financial year. So, I think, you know, I think we'll leave it at that.
I think that's pretty clear, Barry. Thank you, Jenny. Operator, next question, please.
Sure. We're now going to proceed with our next question, and it comes from the line of Dominic Nash from Barclays. Please ask your question.
Good morning, and thank you for my questions. I've got, I think I probably gonna have three. And the first one, kind of the follow-up from Jenny's. For 2024, 2025, could you just give us a, a view of what your view on the consensus EPS number is out there, please? And... Could you also give us an update on whether you're gonna be planning to sell any assets in the coming sort of 12 months, as part of your sort of sell-down portfolio? Second question is on renewables. It's clearly lower wind this year, last year, the year before.
The question I've got is are you starting to factoring any potential sort of global slowing or the impacts of blocking, et cetera, in your sort of medium-term renewable plans? And the third one on the sort of longer-term programming beyond 2030, which is indeed what it's called. I think it was GBP 58 billion of CapEx was proposed for further transmission projects. Is it possible to give us sort of a view on what sort of number is likely to be within your areas, and how much of that is caught within the LOTI and the ASTI program? Thank you.
Yeah. Okay. I think we've beaten up Barry enough on numbers. So look, I think consensus is around about GBP 160 or just over GBP 160. Those are the kind of numbers out there. I've seen those bounced around that kind of level. So around about GBP 160, I think, is where consensus is or just over. Renewables part of the deal was, I'll just deal quickly with T. So yeah, GBP 58 billion of T projects. So, and I think the detail, if we issue the PAT properly is on slide 56 or 58, that Mull and the team have kindly produced. So there's GBP 20 billion of LOTI and ASTI projects that we expect out to 2030.
Then, on the 19th of March this year, there was an announcement from the ESO around some initial work on the Beyond 2030 figures. The biggest part of that was the Shetland Link, which led to Sumitomo breaking ground on a new GBP 350 million cable factory last week in Scotland. It'll create quite a lot of jobs up there, and our share of that is a little over GBP 5 billion. So therefore, I don't know exactly whether I've reconciled the numbers right, but I suspect if you're GBP 58 billion, we're probably looking at either the GBP 20 or the GBP 25 billion.
But in any event, the GBP 20 billion to the license conditions, and the GBP 5 billion, we have a high degree of comfort that it will be included, and we have letters from Ofgem indicating that we can go out and secure a supply chain on that GBP 5 billion of spend as well, which we are now doing, and that's obviously why Sumitomo are now building their new factory. And then renew-
Disposal?
Disposal. Sorry, yeah, that was a part of what... Disposal, no. We've got nothing particularly planned, but having said that, you never know. Recycling capital from assets, I think is something that we've done very successfully, and well, Barry will know all about that, having done all of our big deals over the last decade or so. And so if there are opportunities, we may take it, but it'll be recycling, and it'll probably be more opportunistic. There's nothing currently baked into our plans or thoughts. We're very, very much focused on disciplined delivery and growth.
... Hi, Dominic. And wind output, look, we do an annual review of our P50 production estimates. This year, we also engaged a third- party to help with that. We updated assumptions based upon what we're seeing in plant performance, and as you know, last four years have seen reduced outputs. The review concluded there was no material change to any of them, any of the assets on an asset-by-asset basis. And actually, the review also concluded, to your point about global trends, that we believe using long-term, 30-year wind speed averages is still a better accurate, a better estimate of accurate performance of plant over its long- term, of its long-term life. So we're comfortable on that, but of course, we will continue to do annual reviews.
Thank you very much.
Thank you. Next question, please, operator.
We're now going to proceed with our next question, and the question's come from the line of Peter Bisztyga from Bank of America. Please ask your question.
Yeah, good morning. Thanks for taking my questions. I've got two, please. Firstly, just clarifying a couple of things, on guidance, if I may. I know you're not giving specific guidance for this year - but could you at least indicate whether you expect EPS to be up, year on year? And does that sort of still hold true in your sort of low case, scenario for thermal? And on, 2026, 2027, you seem to sort of be indicating that net, net things are better than last November. So does that mean you're tracking above the midpoints of your guidance for that year? So if you could just clarify those, that'd be helpful. And then a question on sort of elections.
If we work on the sort of base case that Labour are gonna win, any kind of material changes that affect your business that you're hearing about from your sort of conversations behind the scenes? Obviously, GB Energy Supply is one proposal by Labour, and I'm just wondering whether that could actually become a potential competitor to you for new transmission projects. And maybe also, do you see anything on taxation that could be a risk? For example, you know, an end to the full expensing, for example. So any insights there would be very helpful.
Okay. I'm not sure Barry's gonna necessarily narrow his range or improve his clarity of his guidance, but anyway, you can try.
Yeah, yeah. Look, I think, look, all I'm gonna say on guidance for FY 2025, Peter, is that, look, we've been as helpful as we can, and we've given a lot of really strong directional guidance in each of the business units. So I think that should be... There's a lot of information in that. But I will reiterate, we are absolutely confident of having another strong year of results in FY 2025. On 2026 and 2027, look, I think the key points, and we've probably mentioned now a couple of times, is that the quality of earnings looking into 2026, 2027, you know, underpinned now by more regulatory earnings as opposed to on the merchant side, is giving us, you know, the confidence that we're gonna be well into that range of 175-200p .
Okay, great. Thanks, Barry. Just on Labour conversations, yeah, we do speak to political parties of all persuasions. On GB Energy Supply, I think what I've heard or what I understood about what's been said is that they're essentially looking to provide funding for newer technologies, for those things that are struggling to get support in the market. They're also very focused on crowding in investment rather than crowding out investment. And so from a competitive point of view, I think, you know, there's possibly more opportunities, if that holds true, for us to invest with them on projects rather than to compete.
And to be honest, with any government, we've competed with EDF, Vattenfall, Enel, all sorts of people in this country. We don't have any particular fears about that. I think we've got a great team, we've got a great set of projects, and we'll continue to develop things. So I suspect whatever the outcome of the election, we will work with whichever government's there to deliver their targets for 2030 and 2035 and beyond. On taxation, I've heard nothing that indicates that there will be a reversal of the full expensing, and I think anybody who seeks to have strong investment, and my understanding of the opposition's current policies, is that they're more ambitious, for 2030, that they want to move a little quicker, and therefore, they want to drag that investment in.
They wanna get more investment into the U.K. and provide, provide, you know, make sure U.K. is the best and easiest place in the world to invest. If they're going to do that, I would suspect that they'd want to retain that taxation position and bring in the factories and other things that we see. Martin, you may have some other comments on Labour.
Yeah, well, actually, just on politics, if I may. I mean, I mean, I still think we see strong political consensus for net zero across the piece, regardless of who's in government. Clearly, maybe for some technologies, offshore wind, carbon capture, hydrogen, and maybe long-duration storage, things are a little bit behind where we'd ideally like them to be. We said that in our presentation. Regardless of net zero, I mean, clearly, the U.K.'s gonna have to respond to an increasing demand curve and also a slightly aging existing fleet. I think almost regardless of the politics of it, I mean, any government is gonna have to look at investing in some of the places where we have obviously possibilities put forward.
Great. Thank you very much.
Thank you. Next question, please, operator.
We're now going to proceed with the next question, and it comes from the line of Harry Wyburd from BNP Paribas Exane. Please ask your question.
... Hi, morning, everyone. Thank you. So, a couple of short ones, 'cause I know we've covered a lot of ground already. So firstly, just given the better earnings mix by FY 2027, does that have implications for the balance sheet? And from a rating agency perspective, would you say you feel more comfortable in your credit metrics, and that gives you perhaps a bit more headroom than you might have had in last plans? And then the second one on this whole PPA and power demand point, given the U.K.'s got a very arguably generous regime for CfDs with inflation linkage and long tenors, what would it take for you instead to sell your power to a corporate? Would you be? What would be most attractive to you?
Would it be an upfront premium, which probably would make projects more EPS accretive, or would it be a longer tenor than a typical commercial PPA, or do you care about the offtaker's creditworthiness, or is there something else? I'm just interested if we sort of considered that you're gonna sell more under corporate PPAs, what would be different versus selling on CfDs? Thank you.
Okay, sure. Well, look, Barry's our balance sheet guru-
Yeah.
And then I'll hand over to Martin.
Hi, Harry. Just on the debt mix and the rating agencies piece, look, we, as across the plan, we're, our net debt to EBITDA is in the 3.5x-4x . As we get out to 2027, we've always said, you know, we've got to 4.5x to be strong investment grade rating. Clearly, you've called out there will be more regulatory earnings in that mix, so obviously, puts us in a strong position in terms of conversations with the agencies. But look, you know, there are conversations with the agencies for a future day.
All I'm saying, all I'd say is that, you know, we remain confident on our current credit rating, and, you know, when you look at the net debt to EBITDA, that's comfortably covered as you look out to 2027.
Yeah.
On CPPA, it's quite a difficult question to answer 'cause I think it probably depends upon market jurisdiction, technology, et cetera. But essentially, I mean, CP, we see, we see CPPA demand rising. We see value in terms of different term lengths or price possibilities they could offer. Of course, we're mindful that it is a slightly different risk profile, and that has to obviously be priced in as well, including not just, you mentioned credit, but also balancing and who takes some of the risk on that. So all of those things are probably kind of wrapped up in each bespoke negotiation or discussion we have with potential buyers. And look, we've announced one in Ireland over the last year, and we hope to do several more as we go forward.
Yeah. Yeah.
Okay, thank you.
Okay, thank you. Next question, operator, please.
We are now going to take our next question, and it comes from the line of Charles Swabey from HSBC. Please ask your question.
Hi, good morning, everyone, and thank you for the presentation. I've got two questions. First, if we take your comments on having a more selective approach to renewables, and then if we look at the clear growth options you have on the transmission side for the next decade or so, would you be open to increasing regulated networks CapEx above the 55%, beyond full year 2027? Is the first question, and the second one, on SSE Thermal, could you clarify if we should think about that GBP 200 million being the low case for the full year 2026? Thank you.
Okay, two good questions. I think we have a great business with these opportunities. We have to pivot it back and forth. I think the pivot's just been natural. If we did have to go above 55%, we would. If the returns, risk and return balance is better in networks and all the opportunities there, then we wouldn't be afraid to take that. I think at some point we will see both renewables and flexibility swinging back into fashion, and we'll see more investment in that, particularly in the U.K. Whatever flavor of government I think comes in at the end of this year, early next year, I think we'll be focusing on focusing on both of those things.
You know, I would expect to see potentially a bit of a jumbo round of offshore wind next year, given this year is probably gonna be slightly at the lower end of volumes. So, you know, I think we'll see a swing back, but, you know, we've seen other companies go up to about 2/3 networks. I don't have a problem. The key thing for us is about a disciplined approach to where we invest our capital, and then delivering the thing basically, so we make returns. And that's what it comes down to. And then thermal P&L.
Yeah, I think, Charles, your question was FY 2026, if I'm not mistaken. So look, the only guidance we've out there for thermal is, you know, on average, well, obviously, for this year, we have a floor of at least GBP 200 million. We've got on average GBP 400 million across the piece. Clearly, FY 2024 was higher, and, you know, FY 2027 will be underpinned by the very high capacity mechanisms, but it'll be at least the GBP 200 million in 2026 as well. But, you know, we're not giving specific guidance on that, on that year yet.
But I think he said low... I think you said low case, Charles, and so I think-
Oh, yeah.
Yeah.
At least. Yeah, yeah.
It's a low case.
Yeah.
Great. Thank you very much.
Thank you. Next question, please.
We're now going to take our last question, and it comes from the line of Pavan Mahbubani from JP Morgan. Please ask your question.
Hi, team. Good morning. Thank you for taking my questions. I've got three, please. Firstly, you've spoken before about the U.K. carbon price being dislocated from Europe. When do you expect this to narrow, and do you think that the current government is actually concerned about this? Second question: You used to talk about committed CapEx getting you to 95% of your guidance range for FY 2027. Can you refresh that for us? Do you think with your 80% of CapEx committed now, you're comfortable with the range, or do you need to see a contribution from some of the uncommitted CapEx? And my final question, a bit bigger picture: Can you talk about what you would like to see from the sector-specific methodology decision on T3 in June?
And then, what details do you expect to see, apart from, of course, an initial view of the cost of capital? Thank you.
Sure. Martin, Barry, and me, I think.
Okay, hi, Pavan. Yeah, so on carbon, I mean, essentially what we're describing here is an EUA market, which is incredibly mature, has a well-understood policy framework behind it, and proven mechanisms to make sure the market delivers what policymakers are looking for. In the U.K., we don't yet have that because it's relatively new. We have no supply adjustment mechanism, and therefore, there's a little bit less, I guess, trading confidence out there, and certainly less liquidity. Over time, what we have said is we expect the gap between those two prices to narrow, and indeed, given kind of the intervention of CBAMs, we would find it slightly surprising if that doesn't, if that does not occur. In terms of timeframe, though, you're right.
I mean, your point is about, is government policy gonna come in to direct a supply adjustment mechanism? To do that, we have obviously no inkling into the timing of that. It's just a rational assumption we would make.
Yeah, and on the committed CapEx, so the committed CapEx was 65% last year. It's now up to 80%. Clearly, we're a year closer. And look, as the projects come forward and go to FID, we continue to expect that number to go up. And as I said earlier on to the question on renewables, we do not need all of that uncommitted CapEx to hit the 175-200 PPS. In reality, a lot of the projects, especially in the renewables and in the thermal side, they'll all very much be back-ended towards the back end of the March 2027 timeline, so they're making a pretty minimal contribution by the time you get there.
Okay, sector-specific methodology, I'm gonna have to defer to Rob or my transmission colleagues to get you more detail. But I think at a high level, what we've seen is that Ofgem and government have lent into the whole agenda around building networks. We've seen significant acceleration of CapEx and future visibility of CapEx out there with things like the ASTI and LOTI programs. What we now need to see is movement in the right direction on returns. Returns for the current T2 period were probably at the lowest level that they could have been, in the sense that that was the low point for where interest rates were and also risk-free rates.
We saw them go up on a formulaic basis, when you got round to distribution, and I think as we go forward, they have to also take account of investability, which is a matter of a sort of term that Ofgem themselves invented. I think if we, you know, if I listen to people talking, people who are probably important in this debate talking, internationally, they're talking about 10% returns on a nominal basis, so the 6%, you know, round about 6% core, 3% for inflation, 1% for possible outperformances. We would have views that that number should be above a 6%. I don't know whether Ofgem are gonna produce something, or whether they're just gonna try and narrow their range. We're having discussions with them.
The key thing is that we, you know, having got in such a good position for the sector, where we're doing amazing things for the U.K. economy, like bringing Sumitomo here to build factories, and there are many other possibilities, you know, creating really good jobs here. We've got to make sure that we don't spook the market. We need investors to be assured that for, you know, companies with, you know, GBP 5.7 billion worth of RAV, where people are looking for us to invest GBP 25 billion over the next decade or GBP 25+ billion , that is investable. Those businesses will be cash flow negative, and therefore, getting that number and getting the language right is important. We don't want to spook the horses here.
If we looked at the juxtaposition with the water sector, where it looks very, very difficult to get new investment into that place, I think we're in a much, much better place in the electricity sector. So I think it's an important document in terms of signaling where the regulator is, and/or where we need to be to make sure that that capital flows into that business, and that we can take advantage of all the supply chain we've locked in and all the projects that we're working so hard on to build the energy system we need, and to deliver jobs, and other things that this country will benefit from in the longer term. So I think that actually concludes all the questions. Operator, I'll just check again in case there's anybody else.
We have, no further questions at this time. Thank you.
Okay, thank you very much. Okay, thank you all for your questions this morning. With that, I'll draw the presentation to a close. I'll finish by noting that this has been a year of delivery, resilience, and growth for SSE, which has seen us deliver adjusted EPS of 158.5p, the top end of our pre-close guidance. We've shown the resilience of our business model while making good progress on our large capital projects, and reaffirm we're thoroughly on track to meet our financial year 2027 adjusted EPS target of 175-200p, even after accounting for lower forward prices, as we continue to grow the business through our N ZAP Plus .
It just remains for me to thank our moderator and to look forward to speaking with many of you in the coming weeks, as we do our road shows, and other events. Take care, and have a great day.