Good morning, everyone, and welcome to our full year results presentation. I'm joined today by our Finance Director, Gregor Alexander, and Chief Commercial Officer, Martin Pibworth. Over the next 45 minutes, we'll cover in detail three things. Firstly, how a year of strong operational delivery has resulted in our financial objectives being met with adjusted EPS growing at a rate above the long-term target set in November and delivery of record CapEx. Secondly, how our resilient business mix is helping to navigate the group through exceptionally volatile markets. It gives us good earnings, inflation protection, natural hedges, and options right across the energy value chain.
Finally, the prospect of further accelerated investment and growth as an encouraging financial outlook allows us to target further record investment of at least GBP 2.5 billion, 2023 adjusted EPS of at least 120 pence, and an increase to our target for adjusted EPS growth over the five years to March 2026. Critically, against the backdrop of a global gas crisis, the profit we are making is being reinvested at record levels into delivering clean energy infrastructure. We will continue to invest at scale based on the clear opportunities we see in the coming years to deliver on the government ambitions, assuming a continued supportive policy environment. That investment into vital U.K. and island infrastructure could exceed GBP 25 billion this decade, creating thousands of jobs and directly addressing the energy crisis.
SSE's strategy is responsive to the changing world around us. COP26 in November and the stark warnings that followed from the IPCC made clear the urgency needed on climate action. Volatile gas prices and the invasion of Ukraine have also led to policy change in the U.K., the E.U., and further afield. In our fully funded Net Zero Acceleration Program, which we'll refer to as the NZAP from here on, we provided a floor, not a ceiling of ambition, aligning ourselves to a one point five-degree pathway across the five years to 2026, then on to 2031. We covered funding plans, capacity additions, pipeline targets, RAV targets, and what this would mean for shareholder returns, and it was well received by the rating agencies.
If anything, events this year have served to accelerate the long-term electrification and decarbonization of energy, which underpinned our NZAP and which are translating into more options for the second half of the decade. The NZAP set out the optimal pathway for SSE to grow, and in the six months since we published it, I've become even more confident that with our capabilities, our pipeline prospects, and the increasingly supportive operating environment, we can meet and potentially exceed these ambitions. Part of my confidence comes from how in the face of some very challenging conditions, we've delivered our financial targets for the year and invested a record GBP 2.1 billion, underlying the benefit of our resilient integrated business model to both shareholders and wider society.
We'll return to each of these points later, but in SSE Renewables, we have progressed on major projects at Dogger Bank, Seag reen, and Viking, made strides internationally through our acquisitions in Southern Europe and Japan, and added 1 GW to our domestic pipeline with our ScotWind site. The future looks bright for transmission. Our flagship Shetland HVDC Link continues to be built at pace while National Grid's network options assessment make clear the critical need for further network development. The U.K. government has thrown its weight behind an even faster, more strategic network build-out as part of its recent British Energy Security Strategy. In distribution, we worked through six exceptional weather events in 12 weeks, including back-to-back named storms, while progressing a shareholder-led plan for ED2 that we continue to engage on with Ofgem and key stakeholders.
In thermal, commissioning started at Keadby 2, so it provided useful system flexibility. Elsewhere in the group, we acquired our first solar and battery sites. We also completed the sale of SGN, the last step in a strategic streamlining of the group. Finally, we also announced an upweighting to our 2030 business goals, which are aligned to the UN Sustainable Development Goals to ensure they keep pace with the NZAP. This is clear and demonstrable strategic progress that will create future value, achieved while also delivering shareholder returns today. We need shareholders with us on our net zero journey, and that's why they will be given a vote at our AGM on the progress we're making towards decarbonizing our own activities.
Our recently published net zero transition plan sets out the targets we set for scope one and scope two emissions by 2040 and for the remaining scope three emissions by 2050, alongside our interim science-based targets aligned to a one point five-degree pathway. The net zero transition will be exactly that, a transition with complex challenges along the way that we will navigate through open dialogue with both our shareholders and wider society. SSE's business model is based around the assets and capabilities required for the global transition to an electrified net zero economy. This is a result of a highly successful disposals program and targeted investments, which have created a group with the capabilities and projects to create value right across the clean electricity value chain. Our businesses share common capabilities in the financing, development, building, and operation of world-class highly technical electricity assets.
They allow us to specialize in renewables, regulated networks, and flexible low carbon power stations while creating value as new opportunities emerge in areas like hydrogen, batteries, and distributed energy. With sustainability a core part of SSE's values, our credentials and performance underlie our positioning as an ESG-aligned growth investment opportunity. We have an attractive blend of regulated and market-based income streams across a very deliberately chosen, integrated mix of businesses. Of course, our people are central to the execution of our purpose of providing energy needed today while building a better world of energy for tomorrow. As always, keeping those people safe remains paramount to SSE. Our record investment in financial year 2022 was driven by a surge in construction activity. Unfortunately, with that came 14 more injuries versus the same period last year, and a small rise in our total recordable incident rate.
As I say, our 11,000-strong workforce is central to our success, and we'll be creating 1,000 new jobs a year on average in delivering our five-year plan. It's a busy and challenging year. It is the commitment and capability of our people that has enabled the strong growth performance that Gregor will now take us through.
Thanks, Alistair, and good morning, everyone. We outlined in November the scale of capital investment and growth opportunities, as well as the market-leading capabilities and attractive secured pipeline held by the group. We are using those capabilities to deliver on those opportunities, investing a record GBP 2.1 billion investment this year, with almost 90% of that in low-carbon assets and infrastructure. We plan to keep accelerating our investment as we push forward with the net zero transition. In the financial year 2023, we're expecting investment to be in excess of GBP 2.5 billion, including our Southern European acquisition once completed. SSE is delivering the energy needed today, while significantly investing in innovative low-carbon technologies that will provide the energy needed tomorrow. Alistair outlined earlier how the outlook for companies providing low-carbon solutions is strong.
Not all of those companies have the balanced mix to enable them to weather the unprecedented volatility observed this year. SSE is able to deliver in such uncertain times for a number of reasons. Much of our revenue is index-linked, be it via CFDs, ROCs, REFIT, capacity payments, or through regulated network price controls. Our RAV is also index-linked. Our business is designed for variability. Our integrated portfolio means lower wind days can be compensated for through the flexibility we have elsewhere in our fleet. Our assets performed very strongly in the balancing market this year because the system valued the flexibility we provided in terms of both generation and storage. We are well-funded, with a strong balance sheet, and we have maintained good liquidity, which is important in uncertain times.
We have a stable debt profile, and our financing strength has enabled us to be nimble in acquisitions. Overall, this year has clearly underscored the advantages of a balanced, integrated business. That business mix played a key part in our strong financial year 2022 performance. Higher allowed revenues in the new transmission price control period, combined with higher customer volumes for distribution following coronavirus, have meant our regulated networks businesses have more than recovered from the prior year. Looking at our generation portfolio, lower weather-related renewables output, mainly across the summer months, was more than offset by strong, flexible generation performance in volatile markets. As a result of this strong operational performance, adjusted operating profit increased by around 15% to GBP 1.5 billion.
With 96% of our debt at fixed rates, this strong performance is also reflected in the adjusted profit before tax, which increased by around 23% to GBP 1.2 billion. Finally, adjusted EPS was GBP 0.954. This represented an increase of around 9% on the GBP 0.875 originally reported for the financial year 2021. You have noted on the previous slide the marked disparity between reported and adjusted metrics this year. This is a result of exceptional items and fair value remeasurements unrelated to underlying operating performance in the year, and which are therefore excluded from SSE's adjusted profit measures. In terms of exceptional items, as touched on earlier, the volatile conditions have enabled strong performance from our flexible generation fleet and gas storage operations.
With volatility set to continue in the near term, significant historical impairment charges have now been reversed, resulting in a GBP 429 million exceptional credit to the income statement. This is partly offset by exceptional charges of GBP 230 million, including a writedown of the fair value uplift recognized on the part disposal of our Neos Networks telecoms business. We completed our GBP 2 billion plus disposals program announced in June 2020 with the sale of our stake in SGN for nearly GBP 1.3 billion in cash proceeds in March, which generated GBP 577 million of exceptional gains. From our initial outlay of GBP 505 million for a 50% stake in 2005, SGN has delivered an IRR for the group of over 18%.
Overall, we achieved headline consideration of over GBP 2.8 billion from our disposals program, significantly more than the original GBP 2 billion target. Turning to fair value remeasurements, as with previous years, SSE has entered into forward purchase contracts for power, gas, and other commodities that fall under IFRS 9 and are required to be recorded at their fair value at March 31st. The positive movement of GBP 2.1 billion reported in the income statement is a relative increase in the fair value of these contracts, reflecting the remarkable market conditions. However, this fair value movement does not reflect the overall group position on forward contracts as it excludes fair value movements on forward contracts deemed to be for the group's own use under IFRS 9, which predominantly relates to contracted power sales contracts.
In fact, there is an unrealized GBP 2 billion of negative movement in the fair value of these own-use contracts in 2021, 2022, which largely offsets the IFRS fair value remeasurement gains reported. For SSEN Transmission, adjusted operating profit increased by 72% to GBP 381 million, mainly driven by increases in allowed revenues under the new price control as the business continues to position itself to deliver further growth across the remainder of the decade. Increased allowed revenue was supported by increased investment in network build-out and resilience, which was 41% higher than the prior year. SSEN Distribution, following a GBP 40 million negative impact from coronavirus in the prior year, saw a recovery of nearly 28% to report adjusted operating profit of GBP 352 million.
Higher volumes and allowed revenues were partially offset by increased operating expenses, which included storm costs of around GBP 40 million. Capital investments slightly increased in the period as ED1 committed investment continues to plan. In SSE Renewables, adjusted operating profit fell by 22% to GBP 568 million, driven mainly by a lower level of developer profits in the year. A 7%, or 0.7 terawatts, decrease in output year-on-year due to exceptionally still and dry weather during the first half was offset by a GBP 55 million increased contribution to adjusted operating profit by hydro and pumped storage, despite lower than expected rainfall. Strong progress continued on flagship construction projects, with gross investment more than trebling to GBP 952 million, including the Japanese platform acquisition that we'll come to shortly.
In Thermal and Gas Storage, adjusted operating profit more than doubled to GBP 337 million and reflected the critical role played by our thermal power stations and gas storage assets in ensuring secure supplies. They were rewarded for their availability and flexibility in volatile energy markets, and we believe the U.K. electricity system will need substantial flexibility in the future, as we will cover later. Business Energy's performance was broadly flat compared with last year, as the continued recovery from the coronavirus was offset by higher non-commodity costs and mutualization charges following a significant number of supplier failures during the year. Our electricity adjusted operating profit increased to GBP 60.4 million, driven by REFIT wind generation receipts. EPM recorded an adjusted operating loss of GBP 16.8 million, resulting from the unwind of a legacy power contract with OVO in a higher commodity environment.
The distributed energy result includes predisposal losses from contracting and rail. Corporate unallocated costs increased to GBP 96 million, driven by reductions of income from transitional services agreements with recently sold businesses and increased investment in group IT. The commodity price environment has led to significant challenges across the industry. However, our established hedging approach has helped us to manage exposure to price volatility, and across renewables, we've locked in substantial value for the future. We've increased the value of our hedge prices across the group, reflecting the increases in commodity prices and winter peak spark spreads, which has flowed into forward prices. This sets us up well for future years. SSE's strong balance sheet is underpinned by high-quality assets, and we remain well-financed and well-set for our NZAP period and beyond.
Our S&P credit rating remains at BBB+ stable outlook, and our Moody's rating remains at Baa1, having been updated to stable outlook on publication of our NZAP. These compare favorably to peers and reflect the stability from the group's business mix, funding plans, and future dividends. In March, we successfully agreed a new GBP 350 million private placement to support critical transmission investment. In April, we launched a successful EUR 1 billion hybrid bond, the coupon of 4% to replace our hybrids from 2017. SSE's adjusted net debt and hybrid capital has decreased by GBP 300 million to GBP 8.6 billion, with the SGN sale clearly playing a part. We've beaten our target of 4.5x ratio of net debt to EBITDA at the end of this financial year.
Our defined benefit pension schemes continue to perform well with both schemes in surplus at the year-end. Our well-supported NZAP included proposed sales of minority interest stakes in our electricity networks businesses. These are high quality core businesses, and we intend to retain control. The scale of potential growth and the associated investment required mean that bringing in minority partners will create greater long-term value for shareholders. This will enable us to harness significant growth in networks whilst maintaining an attractive balance of capital allocation across the group. We've recently commenced a sales process for a 25% share of the SSEN transmission business first, primarily due to the fact that this growth is clearer given that its price control runs ahead of distributions. A decision and the timing of a similar stake sale in SSEN distribution will be made later in the financial year.
SSE expects these highly prized assets will generate strong interest in the market from financial partners, being a significant pool of investors seeking such an investment and who are content to leave SSE to add management value as operator. Finally, I will cover the dividend and our financial outlook. We remain committed to our existing 5-year dividend plan, financial year 2023, which targets dividend increases in line with RPI each year. In line with that clear commitment, we will propose a financial year 2022 full-year dividend of GBP 0.857. Shareholders will continue to receive a scrip dividend option. However, as previously announced, take-up will be capped at 25%. Following completion of our existing commitments to financial year 2023, we will rebase our dividend to GBP 0.60 in financial year 2024 before targeting at least 5% dividend increases in financial year 2025 and financial year 2026.
Turning to the financial year 2023 outlook, for transmission, SSE expects to report strong growth in adjusted EBIT, with a 20% increase in allowed revenues under the RIIO-T2 price control as the network continues to expand its operational capability and asset base. For renewables, assuming normal weather and plant availability, SSE expects to report generation output of 11.4 TWh, including 0.9 TWh of output from Seagreen. For thermal, assuming normal plant availability, SSE expects to report Adjusted EBIT of at least the same level as financial year 2022, excluding the benefit of Keadby 2 . Taking the above into account, SSE therefore currently expects to report full-year adjusted earnings per share of at least GBP 1.20, an investment in excess of GBP 2.5 billion.
In addition to the strong performance expected this year, SSE is today updating adjusted EPS CAGR target out to the financial year 2026 from 5%-7% to between 7%-10%. This is as a result of confidence derived from strong delivery in the financial year 2022, higher inflation forecasts, higher and more volatile energy commodity prices, and evidence of increased value creation potential from flexible generation and gas storage assets. Importantly, this earnings growth will be put to good use. It will underpin the huge increase in investment we are making into critical national infrastructure that will deliver cheaper, cleaner, homegrown energy for decades to come. I'll now hand you over to Martin.
Thank you, Gregor, and good morning, everybody. In the context of the global push to phase out reliance on Russian gas and accelerate the transition to low-carbon electricity, there is increased volatility, but also increased opportunity in low-carbon infrastructure across Europe. As we have seen in recent E.U. and U.K. policy documents, more wind, more solar, and more flexibility will be needed. The breadth and balance of our businesses mean we are extremely well-placed to provide these solutions. I'll now take you through the strategic delivery and value creation we're driving from the market-based businesses within the portfolio. In renewables, we have a world-class business. As the new MD, Stephen Wheeler brings decades of wider energy sector experience to the role. He transformed SSE Thermal, and before that, worked internationally at ABB and Siemens.
He was also part of the management team that successfully grew Airtricity's renewable energy platform before SSE acquired it in 2008. The new technology-based operating model Stephen has put in place sees distinct teams for offshore and onshore Europe with end-to-end accountability for the development, construction, and operation of their assets. Under this new structure, Stephen is supported by a leadership team with vast experience, including Barry O'Regan as Finance Director. Barry also joined the group in 2008 as part of the successful Airtricity management team. As the company building more offshore wind than anyone on the planet, we have proven our ability to manage complex global supply chains and compete for talent. We are creating a team with the experience and capability to deliver on our international ambitions, building on the significant international pedigree we already have.
This year, we were joined by the hugely talented Japanese team from the SSE Pacifico transaction. In a few months' time, we will be joined by the Siemens Gamesa renewables team in Southern Europe. We are blending our deep experience and capability as one of the world's leading developers with in-country specialists in the markets we're entering. People remain SSE's biggest asset, and the breadth and depth of experience in the renewables team will drive long-term domestic and international growth. Around GBP 5 billion of investment within our GBP 12.5 billion CapEx plan has been allocated to renewables. Around 50% of this investment is on assets currently under construction, and by 2026, we will have built Seagreen, Dogger Bank, and Viking, adding 2.4 GWs of renewable capacity to the portfolio. At Seagreen, we have made progress with 21 turbines now installed.
Setbacks can occur on construction projects of this scale. However, the experienced project team are doing a great job and will continue to monitor any project delivery impact from the widely reported issue with the turbine installation vessel. At present, we anticipate first power in July, with commercial operations by mid-April 2023. Seagreen's projected financial returns remain in line with expectations at financial close. Onshore works have progressed well at Dogger Bank, which will be the world's largest offshore wind farm, and offshore construction got underway in April as planned. At Viking, construction is going very well, with the onshore transmission works expected to be largely complete this year. Turbine installation will begin in early 2023, and it is expected to be one of the U.K.'s most productive onshore wind farms.
The delivery of these wind projects, and many more, will be required for a net zero world. As we have seen this year, however, the wind doesn't always blow, and the requirements for fast response, dispatchable generation, has increased as the U.K. continues to progress through its energy transition. In addition, we have noted that the demand for ancillary and voltage support services has also increased, and we expect all of these trends to sustain. SSE's Hydro fleet and pumped storage asset at Foyers offers all of these services at scale, and we continue to see the Hydro business as the jewel in the crown of our generation assets.
Our confidence in its increasing contribution to the energy transition is reflected in the circa GBP 50 million of CapEx that we are investing each year into maintaining and modernizing the portfolio to increase ramp rates, water capture, storage capacities, and overall flexibility. This confidence, alongside the growing logic for further capacity, is reflected in our investment into Coire Glas, which would be the U.K.'s largest pumped hydro storage project and the first built in over 30 years. Located in the Highlands, the consented 1.5 GW project would have 30 GWh of storage, more than doubling existing U.K. power storage capacity. The system benefits are vast and include reducing wind curtailment and helping accommodate more wind, as well as displacing fossil plants.
To progress to investment, it does not need subsidy, rather revenue stabilization, and it was encouraging to see the U.K. government committing to developing appropriate policy to enable investments into long-duration energy storage in its recent energy strategy. We will examine all options for bringing this plant onto the market. We have made significant progress exporting our capabilities in renewable energy to carefully selected international markets. We have been disciplined, and we have secured valuable options for the future. Most recently, we were very happy to have agreed the acquisition of the European onshore wind development platform from Siemens Gamesa Renewable Energy.
It marks our entry into Southern Europe with a circa 3.9-GW portfolio of early-stage onshore wind development projects across France, Italy, Greece, and Spain, with scope for up to 1 GW of additional co-located solar development opportunities. SSE will take on a team of around 40 Siemens Gamesa employees with vast experience in the sector, and the transaction is likely to complete in September. The aim is to have around 500 megawatts of the portfolio of renewable projects operational by March 2026, with at least 500 megawatts more in construction. By financial year 2031, we'd expect to see the development platform contributing up to 3 GWs towards our renewable capacity target. The four countries in which the acquired portfolio of development assets are located have strong growth prospects underpinned by 2030 renewables or carbon reduction targets.
It is an exciting acquisition and will provide an excellent base for further development opportunities across onshore and offshore wind, solar, batteries, and hydrogen. Closer to home, in December, we won one of the premier sites in the ScotWind process with our partners at Marubeni and CIP. This gave us the right to develop what will become one of the world's largest floating offshore wind farms off the east coast of Scotland. The site is close to our existing Seagreen and Berwick Bank sites, giving obvious benefits. The lease area has average depths of 72 meters, making the site suitable for deploying floating offshore wind to deliver up to 2.6 GWs of new capacity. We are targeting first generation before the end of this decade.
Our ScotWind win, southern European acquisition, and the optimization of some of our existing sites represents important strides towards the pipeline target for financial year 2026 of more than 15 GWs. With more opportunities to grow, the pipeline to come, we remain confident. The U.K. and Ireland remain our core markets, and our development team will continue to explore high-quality development opportunities such as the Crown Estate's Celtic Sea leasing round and Ireland's Maritime Area Consent Seabed leasing process. We are also keen to export our offshore expertise and in the Netherlands have partnered with Brookfield to bid for tenders for the two 700-MW sites within the Holland Kust West wind farm zone, which are currently underway. We have also announced with our partners, Acciona, our application for development rights for an offshore wind farm in the Baltic Sea in Poland.
Earlier this year, we created SSE Pacifico with Pacifico Energy, acquiring around 8 GWs of early-stage development prospects in Japan in the process. Our office in Tokyo is the base for our talented team who are progressing these prospects with the aim to start entering bid rounds around the middle of the decade. Finally, we have opened an office in America to pursue a number of opportunities there. Taken together, as you can see here, we are already beginning to make serious headway on our NZAP ambitions. With the ongoing construction projects complemented by pipeline additions from the ScotWind auction and European platform acquisition, we are well-positioned to meet or indeed exceed expectations by 2031.
We have seen this year how important thermal plant is to complementing renewables capacity on the system, and SSE Thermal is well-positioned to deliver this flexibility to the markets both now and in the future. The business has a talented new MD in Catherine Raw, who has significant experience in commodity markets and investments. SSE's existing fleet remains critical as we transition, providing energy and a whole host of system services. These assets successfully secured GBP 270 million worth of contracts in the capacity auctions this year. However, gas power stations will clearly need to decarbonize, and we continue to envisage the closure of more than 50% of the existing fleet by 2030, subject to security of supply requirements. We don't often talk about the gas storage business, but at times like these, we should.
It has played a critical role in the U.K.'s energy security this year and will play an important role in the portfolio over the coming years. In addition to supporting the system today, our gas storage assets also have potential as hydrogen storage facilities in the future. Thermal currently brings a huge amount of value to the portfolio, principally through selling its generation output for spark spread, the price arbitrage between gas and carbon input costs and realized electricity revenue. Whilst that is important, it is far from the whole story. Indeed, in an increasingly volatile renewables-led system, it is the option value of being able to respond to forward market volatility and the value its flexibility brings to balancing the system on the day that is increasingly important. Having an efficient, responsive, best-in-class fleet is critical over the short to medium term.
The business has a strong strategic logic as part of the SSE group, providing balance when wind speeds are low, as we have seen this financial year. Looking ahead to the medium to long term, it is state-of-the-art assets like our brand new CCGT at Keadby Two and our pipeline of CCS and hydrogen options that will drive this strategic value in future. Keadby Two will be Europe's most efficient CCGT. It will displace output from older, less efficient plants, reducing both GB demand for gas and carbon emissions. Commissioning started in October 2021 with full commercial operation targeted for the first of October 2022.
The station is capable of being upgraded to further decarbonize through carbon capture or hydrogen technology as routes to market develop, but will play a critical security of supply role over the rest of this decade. Ultimately, the system benefits of the existing thermal fleet need to be replicated in a net zero world. For this, we need to see progress with CCS and hydrogen generation. We have been encouraged by the government's commitment to its cluster sequencing process. As part of this, our key CCS plant is progressing within the Humber-Teesside cluster, but we believe the reserve cluster at Peterhead is moving too slowly.
In addition to those credible CCS projects that we are progressing with Equinor, we are also seeking to pioneer a first-of-a-kind hydrogen-fueled power station adjacent to Keadby CCS, and our Medway power station is well located to deliver future hydrogen solutions in the Thames Estuary. Hydrogen power could be a very useful peaking plant in a net zero world. With hydrogen being pursued by SSE Renewables at our wind farms at Gordonbush and Galway, and through SSE Thermal's hydrogen projects, alongside the potential for repurposing Aldbrough gas storage over time, we are beginning to build options for the hydrogen components of net zero. Yet another example of the optionality resulting from being an integrated SSE group. Of course, SSE retains a direct link to customers through SSE Business Energy and SSE Airtricity.
Business Energy offers a route to market for renewable power, and with the advance of PPAs and corporate decarbonization, the potential for growth is clear and the synergies are evident. In Ireland, this is particularly the case with data center growth. While the group is no longer active in a domestic retail market in GB, in Ireland, SSE Airtricity is a great business that works alongside generation in the more integrated Irish market structure. Customer businesses are our green shop fronts, and they share important linkages within the group. We have refocused our distributed energy business over the last few years to primarily focus on batteries and solar. The battery and solar teams have made significant progress this year. Last August, we announced our first battery acquisition with a 50 MW site in Salisbury, and in January, our first 30 MW solar acquisition.
Our existing grid connections at former coal-fired sites also put SSE in a relatively unique position to deploy battery storage at scale and pace with 150-MW opportunities being considered at Ferrybridge and at Fiddler's Ferry. Our secured solar and battery pipeline is now 380 MW, with more than 1 GW of other opportunities being evaluated. As with batteries, solar could be deployed quickly within the current CapEx program. These businesses undoubtedly benefit from being part of our integrated group. I'll now hand back to Alistair to talk about the regulated networks businesses.
Thank you, Martin. Let's start with transmission. With a wealth of renewable resources in the north of Scotland, which will be critical to delivery of the U.K.'s targets, the importance of the role of transmission in unlocking these resources and transporting the electricity to demand further south cannot be overstated. Based on the system operator's own forecast, connected generation in the north of Scotland could increase to nearly 25 GWs by 2030 and almost 50 GWs by 2050, depending on the scenario chosen. These forecasts were established before ScotWind's full potential was known in January and before the U.K. government's energy security strategy with its increased ambition for 50 GWs of offshore wind by 2030. The growth opportunities in this business are immense.
It's already one of the fastest-growing networks in Europe, and with the enhanced ambition and strong signals around the need for faster networks investment, growth is only likely to accelerate. It's performing well. Our first year of RIIO-T2 saw construction at Shetland on the HVDC link progressing well, with the first phase of boulder clearance now complete and the main onshore sites in Shetland and Caithness taking shape. Work continues strengthening the northeast network with upgrades to existing substations and the construction of new ones in order to accommodate the increasing capacity of the existing overhead line. Our new substation at Kintore, where work has commenced, will be the world's first SF6-free 400 kV substation as the network seeks to reduce its own carbon footprint. We've also made excellent progress taking forward additional investments through Ofgem's uncertainty mechanisms.
This includes the Argyll and Kintyre 275 kV strategy, as well as the Skye Reinforcement project, with initial need cases submitted to Ofgem for both projects, which have an estimated investment of around GBP 400 million each. Ofgem has also provisionally approved the first HVDC link between Peterhead and northern England. With a targeted energization date of 2029, this major joint venture project with National Grid Electricity Transmission has an estimated shared cost of GBP 2.1 billion and will be key to addressing existing constraints. All these investments contribute to the transmission RAV, and we are increasingly confident in the forecast growth for this business. This is supported by other developments since November, which are potentially driving forward the speed and absolute levels of growth in the medium and longer term.
In January, the system operator's network options assessment affirmed our view of the requirement for significant upgrades in the north of Scotland. The report supported a number of major projects which accelerate SSE's investment plans, which will be critical to enabling the necessary growth of renewable electricity. In April, in the British Energy Security Strategy, the U.K. government set out clear support for more strategic network investment ahead of demand, highlighting the need for a more agile approach to networks infrastructure. BEIS will mandate Ofgem to support this approach in a strategic policy statement later this year. With ScotWind now targeting up to 25 GWs, further connections will be needed with the electricity system operator's holistic network design due this summer, and we expect this to be factored into another iteration of this document later this year.
This is expected to form part of a blueprint for the whole energy system by the end of 2022 through a centralized strategic network plan. Moreover, we've seen inflation hitting thirty-year highs in the past few months, which will translate directly into higher RAV values. This combination of increased visibility of the transmission pipeline and the expectation of higher inflation than was assumed gives the business an even more impressive growth outlook. We said in November that in addition to the GBP 2.2 billion TOTEX outlined in the business plan for RIIO-T2 plus Shetland, we were putting forward additional major projects for assessment under Ofgem's uncertainty mechanisms, totaling around GBP 1 billion of expenditure, and which would take gross RAV to GBP 6 billion by financial year 2026.
Since then, we've also included an assumption of around an additional GBP 300 million for early spend on projects outlined in the networks options assessment, which we expect to submit to Ofgem for approval. In addition, we've updated our conservative inflation assumption to align with Ofgem's forecast from November 2021, which looking at recent numbers, may still be conservative. Putting all of this together, we now expect to see gross RAV increase to between GBP 6.5 billion and GBP 7 billion by 2026. It doesn't end there. With a clear direction of travel in connected capacity and the requirement of the network to keep pace with the renewables growth, this is a high-growth business. Clearly, the further out we look, the less certain we can be in our forecast, but the long-term political drive towards achieving net zero is very clear.
In November, we said that gross RAV would reach between GBP 8 billion-GBP 10 billion by 2031. Building in assumptions for a refreshed view of projects we expect to be required during the remainder of the decade, we now expect gross RAV to be in excess of GBP 12 billion by 2031. Despite advanced preparation and planning, the worst storms for years significantly impacted our distribution networks with unprecedented damage in some areas. The northeast region of Scotland experienced the equivalent of almost two years' worth of overhead line faults in just one 12-hour period. We experienced similar weather in the south, too, with record wind speeds seen across both of our networks and six exceptional event claims made over the winter period.
We focused on getting customers back on grid as quickly as possible while protecting vulnerable groups, and the increasing frequency of such events serves to highlight the core resilience challenges for ED2. Climate change, not weather, will drive growth. The Climate Change Committee has forecasted a shift in low-carbon technologies could almost treble the demand on electricity networks by 2050. In our distribution network areas alone, electric vehicle charging and heat pump capacity could see exponential growth by 2030. It is the likely load expenditure required to keep pace with this expansion, which led to SSEN Distribution submitting an ambitious RIIO-ED2 business plan. This proposes around GBP 4 billion in gross baseline total expenditure, an increase of about a third on the equivalent ED1 period.
We've set out a huge amount of detail on that plan, which I won't repeat here, but would encourage you to read. It is a stakeholder-led plan that balances investment in the smart, flexible networks that will facilitate net zero with the need to keep costs down for customers. We'll also be further modernizing the business. Some competitors have taken a different approach to how they include uncertainty mechanisms in their plan. We took a straightforward and transparent approach with our customers, so they knew exactly what was needed to deliver a reliable net zero network in an affordable way. The ED2 business plan is expected to receive its draft determinations in late June, with final determinations before the end of the year. The price control begins in April 2023.
It will be a real test of whether Ofgem are able to match the pace of net zero and facilitate the network's delivery of net zero for communities rather than becoming a blocker. We hope they will respond to the clear signals sent by government in its energy strategy. Last year, we set out our plan to unlock the net zero, net zero aligned value in the period to 2026 and grow substantially into the 2030s. COP26 put us in the limelight as a national clean energy champion, and as we've outlined on the previous slides, we're now center stage amid a renewable global push for more clean electricity. We're building connections, partnerships, and MWs. Six months later, we are more confident than ever that these plans represent a floor, not a ceiling, and that we can help drive a significant acceleration towards net zero.
We are accelerating our investments in homegrown low-carbon projects, providing long-term solution to the current energy crisis, creating jobs in local communities, and leading on a just transition. As I outlined in my introduction, as I think we've demonstrated in this presentation, a year of strong operational delivery has resulted in our financial objectives being met. Our resilient business mix is helping to navigate the group through exceptionally volatile markets while also creating opportunities across the clean electricity value chain. Finally, the prospect of further accelerated growth and investment provides a backdrop for our updated financial outlook out to March 2026. We have high-quality options right across the electricity value chain, offering ESG-oriented investors the optimal combination of market and regulated businesses. SSE has never been better placed to deliver for all its stakeholders and wider society. Thank you.
We will now move on to questions after a brief video. Thank you. We'll now take your questions.
Thank you. To ask a question, you will need to press star one on your telephone. To withdraw your question, press the pound hash key. Your first question today comes from the line of Mark Freshney from Credit Suisse. Please go ahead. Your line is open.
Hello. Thank you for taking my questions. Just two. Firstly, on the increase in the five-year earnings trajectory, where it has been raised from five point seven to seven point ten, how much of that is driven by gas prices or inflation, which is indirect gas prices, and what kind of long-term assumptions are you running through there? Just secondly, I think Gregor touched on this, with regards to the high leverage you have to inflation, but can you just run through the mitigations for higher costs? Because I understand CapEx costs for those people not contracted have gone up pretty substantially and the terms are a lot more onerous than they once were. Can you talk about the mitigations that you have for higher CapEx costs? Thank you.
Sure. Well, I'll just comment briefly on the second one. As we previously announced, a number of our projects, like Seagreen, certainly Dogger Bank A and B, Kipevu have all got substantially all of the CapEx locked in. Dogger Bank C probably has some still outstanding, but again, a lot of that is reasonably locked in. A lot of the projects which we've already committed to doing and where we've had business cases put forward, I think we'll see relatively limited exposure to upward rises in inflation costs. Now, obviously on new projects, we may see that, but obviously they'll be subject to new business cases and new bids generally.
I think overall, our exposure to that is relatively limited, while, as you know, we have reasonably good inflation protection, one through upgrades to RAV and through mechanisms. But I'll let Gregor comment on some of the assumptions in the five-year plan and anything else you want to say on inflation.
Yeah. No, Mark, look, we've updated that kind of CAGR out to 2026. Clearly the last six months, inflation's moved up. We've had higher commodity prices. There's higher spark spreads in the forward market. Actually, the flexibility, you know, of our thermal fleet and our hydro fleet have come to the fore. I'm not gonna get into the detail of the precise movements there. I think the key thing is that the confidence we have in the business has meant that we're able from November to now increase that to a guidance from seven to 7%-10%, and gives us confidence in the resilience of the business in a volatile market situation.
I think finally, Mark, obviously we're investing a lot of money. I think we're investing in the right assets is a key thing. You know, the pipelines that the teams are building are in the right place, and we're definitely investing in the right assets, things like Keadby that Martin talked about during the presentation. Thank you.
Thank you. Your next question comes from the line of Martin Young from Investec. Please go ahead. Your line is open.
Good morning to everybody. A couple of questions, if I may. The first one is you've elaborated an outlook this morning of significant investment needs, both across the various business lines in the U.K., but also a significantly expanded opportunity outside the shores of this country. Now, I think it's probably safe to conclude off the back of that there is likely to be some internal competition for capital between the various projects that are brought forward. If you think about that in the context of, say, a government in any one of those few restrictions thinking about introducing an ill-judged and badly thought-out mechanism that could penalize operators in a space, how would that influence the way that you think about the geographic allocation of capital?
The second question is around all of the stuff that the ESO has been putting forward on locational pricing. Now, obviously, this is something that is some way down the line. In the context of where your assets are located and the flexibility that you've talked about this morning, how would you think about locational pricing, for example, being a benefit or a detriment to your generation activities? Thanks.
Yeah. Okay, thank you for that. Martin will deal with locational stuff 'cause I think it's all a bit silly. Martin will give you a more intelligent answer on that one. Look, outlook for investment, obviously very strong. We announced this morning, GBP 25 billion of investment across the U.K. and Ireland, which is fantastic news. I think that investment has been fostered by policy from government that's been clear and consistent, and that's been highly successful in developing markets, like the largest offshore wind market in the world. I think it's clear that going forward, you know, government will want to continue with that. I'm sure that's true in other places as well. As to our international portfolio, yeah, we'll obviously look at allocating capital there.
We think particularly, you know, across Europe and in places like Japan, there are great needs for renewable energy, and therefore we want the opportunity to be able to deploy our expertise in line with the teams that we've created. All those opportunities and options just give us the ability to allocate that capital to where we want to at the time. I think in the U.K., I can definitely foresee government sticking with their path and going further and faster in terms of what they should be doing on decarbonizing and helping people out with the current energy crisis by making sure firms like ours are investing the billions of GBP we've committed to. Martin.
Yeah, morning, Martin. Yeah, just on the debate on locational pricing. I mean, the first thing I think we'd say is we think the current market works pretty well. I mean, the current market has enabled more offshore wind than anywhere else in the world. It's enabled people to think about flexible low carbon thermal solutions that we talked about in the presentation. Power markets are liquid. They allow both generators and suppliers to get their exposures away. Of course, security of supply is being very, very good. To change all of that. We've obviously, as a management team, been in the markets for a very long time. I think we've seen two wholesale market changes.
Both of them had their issues, and both of them had their complexities, and both of them probably took more time than people imagined when they started that journey. I think at a high level, we'd have concerns about market liquidity, about forward market functionality and hedgability, and also what it does to investment signals now, trying to imagine what markets might look like in a slightly fragmented way a few years down the line. We'd have to think through all of that. Clearly there's obvious complexity here, and to be honest, at the most simple level, I think there's really big, strong, clear priorities, which are, we've gotta build out a lot of offshore wind as a country, we've gotta build out transmission networks, and we've gotta build out flexibility.
It kinda feels to me like the focus should be there rather than on a more academic market design discussion.
Thank you.
Okay, thank you.
Thank you. Your next question comes from the line of Deepa Venkateswaran from Bernstein. Please go ahead. Your line is open.
Thank you so much. I had two questions. The first one on the article yesterday in the FT, which had managed to wipe off quite a bit of value for shareholders. I wanted to check with you whether you've had any conversations with Treasury or BEIS, and what's your understanding of what they might do. Does the GBP 10 billion amount sound credible to you? Do you think it takes things like hedging into account? If you can give us a flavor of what conversations you've had yesterday, and how your GBP 25 billion of investment in the next decade will be taken in that context. That's the first question, which I think a lot of investors are still worried about. A second one, just on Seagreen.
Could you just remind us what's happened over there and, you know, how much has the timeline shifted, and is there any sort of risk to your volumes this year? I know you've outlined zero point nine terawatt hours from Seag reen, but if you can just contextualize, should we pencil in anything for a risk in case anything is delayed more? If you can just update on what's going on there. Thank you.
Okay. Yeah. Look, I saw the FT article and I saw the share price movement. Obviously, feeling better about the share price movement this morning that accompanied the results. I think ultimately, you know, that's speculation in the newspaper. What we've seen from this government is increased ambition. You know, first of all committing 2050 to law, then looking to decarbonize the electricity sector by 2035 in advance of COP26. Looking for 40 GWs of offshore wind, increasing that to 50 GWs. In Scotland, we've seen the administration there make 25 GWs of ScotWind available. You know, there's probably more seabed available in Scotland than there is in any other jurisdiction in the world at the moment.
What I see is clear, consistent policy that's driving large amounts of investment. I think that is a huge success. I think politicians and policymakers will look at that and see that as a huge success, and move on quickly. They'll want to see the investments made, sort of investments that we've announced this morning. We're confident that we'll be able to make them. We're confident that lots of other companies will too. I think that's the key thing. I've not held any specific conversations with government or nobody's approached me about any of that.
What I've seen is the clear and consistent policies around wanting to make sure that people invest so that we deliver a cleaner system, particularly a more secure, local and indigenous energy system, and one with much lower costs going forward as well than we're seeing from importing all these expensive hydrocarbons from maybe regimes that we don't like anymore. Martin?
Good morning. On Seagreen, I think we're probably pretty clear in the presentation, but I'll just say one thing and then perhaps reiterate a couple of things we said. Firstly, these are big, large infrastructure projects. There's complexity in there. I think you go into every project expecting some ups and some downs, and we've got very good experience in managing those and also dealing with problems when they arise. The project team has done very well on the well-publicized issue we had with an installation vessel. We believe that's mostly resolved now. That is why we said this morning the dates we gave for first power in July and COD in April 2023.
I think it also speaks to the value that we have in terms of long-term relationships with OEMs and major contractors that we can sort out issues when they arise. In terms of volumes, I think was the other part to your question, we said in our presentation we expected about 900 GWh out of Sea Green this year as commissioning volumes.
Okay, thank you.
Thank you.
Thanks.
Thank you. Your next question comes from the line of Chris Laybutt from Morgan Stanley. Please go ahead. Your line is open.
Good morning. Thank you very much for taking my questions. I had a question just on the level of growth in the transmission business. Slide 41, you outline the NOA, the BESS, the HND, and the CSNP, and then you've got a slide looking at inflation. There are five factors that we can see there. How many of those factors are included in the GBP 6.5 billion-GBP 7 billion guidance level for the RAB by the end of fiscal 2026? I'm just wondering how much upside there could be to that number. Or whether you could provide some commentary on how these processes may feed into your guidance when due.
Will it push that number up or will it push up your growth in the latter parts of the decade, and thereafter? Question two, just in terms of Dogger Bank, we understand that your CFD commences in 2024 for Dogger Bank A. Just wondering if you could walk us through how you would approach the commencement of that CFD with respect to your rights to defer the commencement, and how you step through the, I guess the process to make a decision.
Right. Okay. Greg is gonna have a quick go at transmission, then I might have a go as well, 'cause you haven't. You didn't mention HND 2.0. But, anyway.
Gregor, I think, you know, when you're looking at transmission, there's a lot of moving parts. We've upped the kind of target to six and half to seven from six. You know, that's quite a big move. Of course, there are scenarios where you can see that being above that. We think there's a good case that it won't be below . Inflation has a reasonable element of that, but all the new opportunities that we've identified today and included in that slide, we think is a reasonable base case. I... You know, I wouldn't wanna kinda put anything more on it at the moment, Chris.
Over the next few months, we've got quite a lot of work progressing in that business that we'll be able to give a wee bit more information and insight in how things move forward. I think it's a good base case. Alistair may wanna just add a bit more.
Yeah. Look, I think what we're seeing is an acceleration. These projects are big and long-term. You know, we're inking in things for 2029 now, which is that first HVDC from Peterhead down to northern England. What I see is the Scotland process and then the HND 2.0, that's really gonna kick up investment in T3. Look, you know, inflation's as Greg said could well take it up. I think what we're seeing now is a bigger drift to T3 and T4, i.e., the period right the way out to 2036. I think that's where we're locking in more and more growth. Look, I agree with everything Greg has said. On Dogger, I'll let Martin comment.
I mean, firstly, I mean, just to say if it came across clearly in our presentation, very, very proud of the asset. It's great to be building the world's largest offshore wind farm. We're also in very good partnerships there with other shareholders, so that they're all very constructive. I guess right now we're concentrated on building out all of that capacity. It is a significant infrastructure project to take on. Obviously as part of that, there will undoubtedly be pre-commissioning revenues that we'll need to think about how we think about putting those onto the market and hedging those, and that's a discussion for further down the track once the project has proceeded.
Clearly, these are assets that exist beyond their CFD longevity. These are not 15-year assets. They're decades-long assets, and we need to think about that as well. But right now, the focus is on building out the asset and delivering it into the system, to make sure that it's contributing to the energy mix, and doing what we're required to do in terms of decarbonizing the system.
There's nothing changed in our plans, basically, on the wind farms or the offshore wind farms that we've got.
Okay. Thank you. Thank you very much.
Thank you.
Thanks, Chris.
Thank you. Your next question comes from the line of James Brand from Deutsche Bank. Please go ahead. Your line is open.
Well, hello. Well done on the good results. I've got two questions. The first is on kind of hedging and how you trade your wind assets. Obviously, we know what your hedging is, and we can see what the forward power price is, and we can all do the math in terms of multiplying existing hedge with hedge price and remaining position with market price. Obviously it's more complicated than in reality as you have to do buybacks when your wind volumes are low and obviously additional sales when wind volumes are high. I was wondering whether you could just help us think about how that impacts on your achieved price.
There isn't a simple way to know how to think about it, but if there is, that would be really useful in terms of understanding that cost. Secondly, you mentioned batteries as being an area where you were keen on development, and the economics look to improve pretty substantially for batteries. I was wondering whether you could just talk us through the economic model for those battery investments. Thank you.
Okay, that's great. Thanks. I'll give both those to Martin to have first crack.
Okay. Thanks and morning. I mean, on the hedging, I mean, of course you're right. Wind price capture will also depend upon yields, and clearly the shape of those yields when, during the day yields are delivered, and also what is going on in the wider market. That is why we've always consistently said that if you are going to run a wind business, it's very important to have flexibility, and that is why we leave some flexibility in our hydro business. Unhedged, it can respond to anything and provide cover should wind intermittency be a bit more uncertain perhaps than we're expecting in the longer term models. It's also why we've retained CCGT flexibility as well.
While we're also, because we're a long-term business looking to build out lower carbon thermal flexibility to give risk management value back to the renewables business in the longer term. I guess the other thing to note is that forecasting and spot trading, spot balancing are very important in ensuring that you maintain value in your wind assets. Obviously we've got a good history in both of those as well. In terms of batteries, it's actually part of the story. We have a desire to increase the risk management aspects of our group as we build out more wind.
Batteries would seem a very good mitigation to some of the super peak issues that you've seen particularly over the last year and wind's exposure to that. We'd see them as very, very complementary to our overall exposure to wind and it creates better value as an overall book. We're also in the position where we have legacy generation sites, and we reference Fiddler's Ferry and Ferrybridge as big coal sites where we can deploy very significant battery capacity very quickly. That would seem to us to be a logical extension of our natural portfolio and our natural skill sets, and we're working very hard to achieve that.
Great. Thank you very much.
Thank you.
Thank you.
Thank you. Your next question comes from the line of Ajay Patel from Goldman Sachs. Please go ahead. Your line is open.
Good morning, and thank you very much for the presentation. I guess I've got three questions, please. The first one is, look, it's clear that higher power prices, better inflation assumptions, thermal spreads are leading to a situation where cash flows are better than the plan maybe you set out back in back last year. I'm just wondering what the priorities are because it clearly seems to me like there's a lot of opportunity domestically. Clearly in your presentation you've highlighted it. With security of supply increasing in the priority lists for politicians, there's also other opportunities to develop, say, for instance in Europe or in Germany where more investment will be needed. What's the right balance between organic investment and maybe looking at those opportunities and trying to take advantage of them?
In terms of those cash flows and that better outlook, when could we maybe see that reflected in your investment program, given the outlook? The other two questions, one was just on strategy in terms of the commodity environment. As in, would merchant wind feature more in your portfolio investment decisions or how? What's the status here given the change in market environment? Lastly, this was more of a smaller question. Just in the 2022-2023 guidance that you're giving, have you made any contingencies for regulatory risk or is it just this is how the world is as the market we see it today and then you would have to think about that?
Okay. Why don't I take one, Martin takes two, and Gregor takes three.
Yeah.
Is that all good?
Yeah.
Fine. Look, yeah, you've set out why we're getting better cash flows. We've obviously invested in a couple of platforms in Japan and Europe. I think, you know, we are still open to and prepared to look at inorganic growth, and whether that's acquiring individual assets or indeed acquiring small platforms, although we're obviously really pleased with the two we've got. We don't necessarily need to add to those. We want to integrate them, bring them forward. For us, it'll give us additional places, as discussed earlier, to allocate capital, and give us additional markets to play into, and we think Europe will be a very strong place for growth in renewables going forward.
It'll be key to us to obviously maintain our discipline in the way in which we do that. I think that's definitely what we're gonna do. In terms of the investment program, I think it's just increasing the certainty that we've got. I think Gregor's commented before that in the GBP 12.5 billion plan, we were probably about 60% locked in. In November, we're probably 75% or just ahead of that now. As we go forward with a lot more and more things in, and we are seeing more opportunities, but we're not baking those into the plans just yet because the world is quite uncertain and quite volatile.
We do have increased certainty about the delivery of the GBP 12.5 billion, and then indeed the GBP 25 billion, that we set out as our headline and our highlight for what we're gonna do this decade. As we go forward over the summer, if we can bake in more opportunities and you know, redeploy the profits that we're making, to invest even more, and we can do that in a way that's accretive to shareholders, then we will certainly look at doing that, and we'll obviously update the market as and when we're clear on what those opportunities are and how much that incremental investment could be. So Martin.
Yeah, no, absolutely. Just on the merchant wind question. I mean, look, when we go into projects, we think about all sorts of things and all sorts of, you know, what's merchant price likely to be? What are the risks on those? Alongside, obviously the natural considerations of CapEx, et cetera. We're very aware as well, of course, that there is the REMA process going on in terms of market reform, and there's other things we've also earlier just talked about in terms of possible movements in the way markets are configured or markets are structured, so we take all of that into account.
I think the key point, though, here is because we have this flexible portfolio and because we have a really good mix of assets, it probably allows us to take a more portfolio-based risk management approach to those opportunities, and that might provide us with a bit more flexibility than maybe others, should we decide to go down that route. That's probably helped us in the past, and I can't see why that would change in the future.
That's it, yeah. I think for us, almost the different geographies give you know, a little bit like we've got, ROCs, CFDs, REFIT, and now I was almost relearning yesterday, RES over in Ireland.
RES, yeah.
Yeah. We've got these different mechanisms and we'll see, you know, what we've seen already to date in auctions we've participated in. You get different mechanisms. All that provides a bit of diversity to your earnings.
Yeah, I mean, look, Ajay, on your question on the guidance, at least GBP 1.20 on EPS, very clearly, you know, we're seeing renewables coming back, you know, from volumes down with weather in the previous year. We're seeing, you know, new plant coming on at Keadby 2, and we're seeing the networks, particularly transmission, expected to show profit growth coming through. In our assumptions, we just assume that we have a normal, stable regulatory position, and I don't see any expectation of that changing.
That's it. Thank you very much.
Thank you.
Thank you. Your next question comes from the line of Sam Arie from UBS. Please go ahead. Your line is open.
Hi. Good morning, everybody, and thanks for a great presentation and great results today. Forgive me, but I'd like to just take us back to the windfall tax topic. I know that Deepa asked quite a detailed question, and he gave a helpful answer already. Yeah, I guess also I should say, I guess like us, you probably don't know exactly what government is going to do next. I just wonder if I could ask you a couple of follow-up questions just to see, if you like, what your best guess is of what could happen. I suppose the first follow-up is, you know, some of the press reports are suggesting we're gonna get the windfall tax package out of the government maybe as soon as tomorrow. Does that seem realistic to you?
I suppose secondly, you know, what is your expectation about whether such a package would include power generators, as the FT said yesterday or maybe wouldn't, as some other press reports seem to be suggesting this morning? Then kind of more broadly, if I may, you know, I'm interested. You know, I assume that you would not be supportive of a windfall tax on power generation. What do you think government should do instead? Obviously, the plans you laid out today are, you know, very helpful for the long-term view. Government needs to do something short-term. I'm just wondering what you think would be the best thing for them to do.
Also, if they do go ahead with a windfall tax that impacts you know, it'd be great if you could talk a little bit about what your reaction or your options might be. For example, would that lead you to rethink your U.K. investment plans and maybe reallocate investment outside of the U.K., or would you have kind of regulatory or legal options? Just, I think such a big topic, it'd be great to hear more from you about your options. Thank you.
I have no idea when government are gonna come out with stuff as I said earlier. They haven't come and spoken to me, but they don't speak to me about their general policy and announcements too often anyway, in advance of making them. You know, a lot of that is speculation. In terms of whatever we would expect, rather as I said, you know, government's had some really strong, consistent policies. Those have led to really strong, deep investment by a whole industry. They've created really strong markets in things like renewables and offshore.
For partly that and a variety of other reasons, the U.K.'s probably as well placed as pretty much any country in Europe, you know, in terms of where it's at for energy security and indeed the diverse sources of energy it's got. So look, you know, on windfall taxes, that's a matter for government and policy. We obviously all have to have sympathy with people about the cost of living crisis, you know, and would understand if government felt that they needed to act, you know, following the sort of warning yesterday by the head of Ofgem, that bills could be hitting GBP 2,800 on average for domestic consumers coming into this winter.
It, you know, we clearly wouldn't be supportive of wholesale changes in policy which would radically affect investment, whatever they may be, just given the success of what we've had. In terms of short-term things, look, we're investing GBP 7 million a day at the moment. The short-term things that government should be doing is making sure that they've got policies out there to encourage companies like us to commit to those massive numbers, like GBP 24 billion worth of investment in the U.K. and lots of other people doing the same. As Martin's laid out earlier, we'll be bringing Seagreen on stream.
You know, every incremental megawatt that we take now, or bring in now to the U.K., one, it increases our security of supply, and secondly, it also reduces our need to import expensive gas molecules, you know, from regimes that we don't really wanna deal with anymore. All those things are the important things. You know, we're an infrastructure company. We have to encourage government to stay the course. They're doing things that are incredibly positive for where this country stands in terms of its getting back to much more like self-reliance on energy. It needs to stay that course.
It needs to continue to make sure that companies like ours invest money, we create the thousands of jobs we're going to create, and we bring forward those assets that are gonna bring cleaner, greener, more secure, and ultimately far more affordable when you look at CFDs, you know, even compared to nuclear, which is, you know, which is clearly part of the government's thinking on balance. You know, the Dogger Bank CFDs, which are down at around GBP 40, and Seagreen CFDs, you know, they're gonna yield huge benefits, taking hundreds of GBP off consumers' bills, when those wind farms and ones like them are built. They're gonna ensure or really protect us against the possibility of any future crisis like this coming.
That's the short-term actions I think government should be taking in regard to big infrastructure companies like ours.
Very good. Thank you.
Thank you.
Thank you. Your next question comes from the line of Dominic Nash from Barclays. Please go ahead. Your line is open.
Yes. Good morning. Thank you for your questions. I wanna follow up on Sam's question, if I may, which is, in the short run, obviously we've got a fuel poverty issue. The question I've got here is that all the responses I've seen reading from utilities is pretty much asking for the government to intervene and help the consumer and putting policy in place for your longer term investment and support utilities and all the rest of it.
The question I've got here is, do you not think that when you're earning over 100 GBP a MW-hour on your renewable generation, and you've got this situation of nearly half of this country potentially going to technical fuel poverty, that the utilities probably need to stand up and own this problem and help and contribute to trying to sort bills rather than standing back and asking the government to sort of sort it out for them?
The second question I've got is on your minority stake sale, which I think one of the main rationales for it is to recycle capital into sort of further investment. With everything sort of going your way and the cash flows are increasing significantly, is it not better to keep this stake sale or keep the stake rather than sell it if you don't actually need the money so much? Just one very quick one as well. Heat networks, which I think are really interesting and geothermal in the U.K.. Understand you guys have got a project lined up in Stoke on this one here. I just wanna know what your thoughts were on the rollout of geothermal in the U.K. and how this Stoke project's working. Thank you.
Fine. I'll do one, Greg can do two, and Martin will do three, I think. Something in it for everybody there. Thank you, Dominic. Look, there are short-term fuel poverty issues. You know, you can see from the hedge book on page 21 that we're not earning GBP 100+ a MW-hour currently, on prices, nor are those available in the short term where markets actually trade. I think in any event with us, whatever additional profits we're making from the huge amounts of investment that we've made, what we need to do is reinvest those. You know, we made GBP 1.164 billion for the...
We reported GBP 1.164 billion of pre-tax profit in the year just gone, and we invested just over GBP 2 billion. We are predicting a profit increase next year, but it still won't cover the GBP 2.5 billion plus that we're investing. It's absolutely critical, essentially that while people should act responsibly and all play their part, that GBP 7 million a day doesn't come from nowhere. We're investing far more than the profits that we earn, and that's something that we're gonna continue doing for years to come. That's all gonna be for the long-term benefit of consumers. They're all incremental things, exactly as I said about Seagreen.
If we talk about Keadby 2, again, is gonna be using far less gas.
Yeah.
than some of the other assets that it'll displace off the system. It'll be doing it more effectively going forward, and it'll be around for a long time. These big investments are gonna pay off for consumers, and we need to stay the course on that. We need to be consistent with what government policy is, which is about going further and doing it faster. That's what we're absolutely doing here and now. Gregor, minority stakes.
Dominic, you know, when we came out in November with the NZAP, it wasn't just about recycling capital, it was also about rephasing the allocation, you know, of our CapEx plan between renewables, networks, and emerging technologies. We've moved networks from 65%- 40%. We moved renewables up to 40%, which was a significant increase in our investment p rogram, and then putting money into emerging technology. I don't think that has changed. We will still have control of the operations and the strategic outlook of our networks businesses. We don't intend changing that plan.
Just on heat. I must admit, I confess to not knowing the complete specifics of the Stoke project that you refer to. The high level answer is we... Look, we've got 18 heat networks across the U.K.. We probably regard ourselves as one of the leading players in the market. We think heat is gonna be a very, very important part of decarbonization, and it's clearly right that we're involved in it, and we have visibility of that. We are encouraging in terms of policy in that regard. We've got plans to progress with decarbonization of heat sites. Actually, we're also involved in finding new ways and innovative ways of using waste heat.
That's obviously a smaller business within SSE, but plays importantly into the decarbonization and the net zero objectives that we are pursuing along, obviously, with government and society.
I still prefer electricity, battery and solar.
Well...
There you go. Thank you.
Thank you very much.
Thank you. We will now take our last question, and the question comes from Bartłomiej Kubicki from Société Générale. Please go ahead, your line is open.
Good morning, and thank you for taking my question, as the last participant. Three issues I would like to discuss with you. Firstly, if you can comment on the transmission performance in the first year of RIIO-T2 in terms of ROE generation. How does it fit into your previous 7%-9% guidance of ROE you could create from electricity transmission during RIIO-T2? What would be the outlook for this year, given rising inflation? Secondly, if you could comment on the latest auction in Ireland, where you won 105 MW for your onshore wind farm. Actually, prices are around EUR 20 higher than the previous auction. Do you think this is a good signal pointing to rising PPA prices, CFD prices also in the U.K., going forward on the back of higher CapEx?
Actually, what, in your opinion, is the key driver of higher auction price in Ireland lately than the previous ones? Thirdly, for your thermal outlook, really good performance. You put here that the 337, at least for FY 2023, does not include the contribution from Keadby 2. Could you actually tell us what could be the upside from Keadby 2? Obviously, we have the T-1 Capacity Market contract. But I guess there could be also some profits coming from spark spreads, right, in balancing markets. So maybe if you can tell us what the potential upside from Keadby 2, on top of the FY 2023 outlook could be. Thank you.
Okay. Yeah, no, look, I'll tell you what, we might all have a quick crack at number three. I'll start there. Yeah. Obviously, we just wanted to underpin our forecast by saying that we felt Thermal would have at least as good a year this year. Keadby 2's still in commissioning. You know, it's a great asset, but it is a prototype, essentially. We're hoping that that will hand over at the end of September, very early October, into full operation. On that basis, we're just slightly more cautious about what we say about the numbers. Otherwise, everything that you said is accurate. I think Greg will do the first and Martin will do the second, and then both have a kick at Keadby and
Yeah, look on transmission, the numbers we quote are clearly nominal numbers. You would expect us to be closer to the top end of that range, you know, for last year. Moving forward, clearly with higher inflation, we may be a bit higher than that. You know, I wouldn't speculate on it. The one benefit that we have in our transmission business that some others don't have is that we don't have any index-linked debt in there. We're reasonably fixed. We've got a pretty good upside in the business in respect of that. I think, yeah, we may, you know, in the future, be quoting nominal and real numbers because I think inflation's quite volatile. We'll probably come back to that in the future.
Yeah, I'm on Bartek. Yeah. You're actually right on RES-2. The average clearing price seems to have gone up from around EUR 70 to around EUR 90. I think your question is, does that denote anything in terms of inflationary pressures? Well, possibly and maybe. The only kind of slight caveat I'd put on that is Ireland's obviously a very different market to GB, which is in turn a very different market to any of the other European markets we've discussed, with probably different kind of land issues and connection issues. I think there is something in what you're saying, but I wouldn't take it as a complete pure read across. Just while we're on Ireland, if I may. I know you didn't ask this, but I'd love just to say something about offshore wind.
Clearly, we have been developing offshore wind sites in Ireland for a while. The lead site for us being Arklow. Of course, the policy continues to get more and more positive in terms of that. We continue to pursue that as an option and are hopeful of that in the future.
Okay, great. Thank you.
Thank you very much.
Thank you. Okay. Look, I hope everybody's found that presentation useful. You're leaving the session with a clear sense of the results that we delivered in financial year 2022. Strategic progress made, but also the breadth of the future growth prospects that we have. I'd like to thank our operator for hosting the call, and to thank all of you for joining. The IR team are available should you have further questions during the day. Indeed, we look forward to engaging with you over the coming days, and next couple of weeks when some of us will be out on the road as well. Thank you very much, and have a great day.
Thank you.
Thank you.