SSE plc (LON:SSE)

Earnings Call: H2 2021

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May 26, 2021

Good morning, everyone, and welcome to this virtual presentation of our 2021 results. Gregor, Martin and I will summarize what has been a year of strong underlying performance, strategic delivery and progress in creating a wealth of future growth opportunities. Thanks to the resilience of our business model, the quality of our assets and the commitment of our employees, we have powered change effectively throughout the pandemic, and our strategy remains firmly on course. Firstly, our £7,500,000,000 CapEx plan is well underway with construction progressing on our flagship renewables projects. These include Seagreen, Viking and the world's largest offshore wind farm at Dogger Bank. In fact, we're leading construction of more offshore wind than anyone else in the world right now. Secondly, our regulated businesses of continued to progress ambitious plans for the networks needed to reach net 0. Transmissions TOSX through RIIO T2 is set to be around 2,800,000,000 excluding the Shetland HVDC link and there is further growth potential in sight, while Distribution's ED2 draft plan to be submitted in July will include net zero generated growth from well evidenced stakeholder led proposals. Thirdly, agreed transactions in our non core disposals program expected to yield over £1,500,000,000 of proceeds, and this is set to exceed the £2,000,000,000 target on completion of the prospective sale of SGM. And finally, we are developing further medium- to long term growth options in areas such as pump storage hydro, carbon capture and storage, hydrogen and batteries. We have a highly desirable pipeline in domestic U. K. And Irish waters, and we're establishing new partnership platforms internationally. This year also marked the end of an era with the retirement of our Chair, Richard Gillingwater, who made a huge contribution to SSE's successful strategic realignment. He handed over to Sir John Manzoni in April, and we're already enjoying working with Sir John, who brings his own energy, enthusiasm and fresh insight to the job. Of Our priority throughout the pandemic has been continuing to support the safe and reliable supply of electricity. I'm very proud of the efforts our frontline teams who worked tirelessly through the year despite concerns over the virus and challenging weather. That embodied our purpose of providing energy needed today while building a better world of energy for tomorrow and ensure we played our part in the national pandemic effort. Since we did so without drawing on government support in the form of furlough or rates relief and implemented a wide range of measures to provide flexible and safe working. Through all this, I'm delighted to say our safety performance remains strong with 47 total recordable injuries, down from 55 last year. Our disposals program has further sharpened the group's strategic focus on renewables and regulated electricity networks. These businesses are key to enabling a net zero economy, significant growth potential, and importantly, they fit together. With common skills and capabilities in the development, construction, financing and operation of world class, highly technical electricity assets. We continue to see a strong strategic logic to them forming the low carbon electricity core of SSE. Of the other businesses we retain are highly complementary to that call. Thermal, like hydro, provides flexibility to balance wind variability. We've seen the benefits of this in recent weeks, and longer term, thermal can drive forward the CCS and hydrogen solutions the country will need in the decades ahead. Our customer businesses provide a valuable route to market and help customers reduce emissions. Our distributed energy business within enterprise gives us a foothold in the growth sector and an effective energy portfolio management business delivers commercial synergies and manages commodity risk across the group. Our business mix is very deliberate, highly effective, fully focused and well set to prosper on the journey to net 0 and beyond. We are building a better world of energy for tomorrow. In May 2020, we published our greenprint of policy initiatives for building a cleaner, more resilient economy. A year on. We've seen the government policy landscape develop in line with this vision, reaffirming the opportunity we have to support delivery of increasingly ambitious targets from net 0. Our purpose is neatly aligned with societal ambitions on climate action, and the delivery of our planned investments will go a long way to decarbonizing the economy while meeting SSE's first financial objective of remunerating shareholders. In keeping with that, Today, we are reiterating our commitment to delivering the 5 year dividend plan to 2023. I'll now hand over to Gregor to cover performance. Thanks, Alastair, and good morning, everyone. Underlying business performance was strong, and I'm pleased to say that there has been no material adverse impact from coronavirus on the financial performance of renewables, transmission or thermal. As we have reported throughout the year, distribution and in particular enterprise and business energy had a more challenging period, but this has in no ways slowed our strategic progress. The impact in the group as recognized within the adjusted results around £170,000,000 at the lower end of the £150,000,000 to £250,000,000 range we highlighted in June 2020. In addition, we expect that £34,000,000 of the impact on distribution will be recovered in future periods. We have navigated the pandemic well, thanks in large part to the excellent efforts of our colleagues with demand also holding up better than we had initially stated. While the longer term economic implications of the pandemic remain uncertain, we expect the ongoing impact in SSE to be mainly limited to our customer facing businesses and assumed within normal business performance. Coronavirus notwithstanding, we have delivered solid growth during the year, including Adjusted operating profit slightly increasing to over £1,500,000,000 adjusted profit before tax increasing by 4% to £1,100,000,000 and adjusted EPS increasing by 5% to 87.5p. Disposals of non core assets recognized within the reported metrics generated £878,000,000 of net gains during the year. Reported metrics also include $645,000,000 of positive mark to market movements on previously out of the money operating and financing derivatives held at the year end. This significant movement demonstrates the volatility that can arise on revaluation of these forward contracts from period to period, which is unrelated to current operating performance and therefore excluded from SSE's adjusted profit measures. As Alastair highlighted, we are simplifying the group to predominantly focus on our renewables and networks core. Since the start of 2021, agreed disposals of non core businesses and assets are expected to yield over 1,500,000,000 of net proceeds. With over £1,400,000,000 received in cash to date, these disposals have contributed to the reduction in adjusted net debt. The £878,000,000 of net gains and disposals also demonstrates the value SSE can create. SGN is expected to be SSE's mixed material disposal. It has been a first reinvestment for the group and the business is set to benefit from increased hydrogen usage. However, there's a financial investment run largely independently now and the synergies with the low carbon electricity businesses are less clear. In light of market developments and in consideration of the Real G2 price control referral to the CMA in March, we stated our intention to divest all of our equity stake in SGN. We now expect to commence formal sale process for SGN in midsummer with the intention of having agreed sale by the end of the calendar year. We will update the market on progress in due course. Performance across the core business has been strong. In transmission, adjusted operating profit was broadly flat. A phasing of allowed revenue and increased connections were offset by increased operational costs and depreciation charges driven by significant capital investment in recent years. In distribution, a combination of lower demand due to coronavirus and an over recovery position in the prior year led to 25% reduction in adjusted operating profit, although around £34,000,000 of the impact in 2021 is expected to be recoverable in future years. Renewables saw an increase in adjusted operating profit of 29%, which included £226,000,000 of developer profits on sale of a 51% stake in Seagreen and a 10% stake in Dogger Bank A and B during the year. Excluding these, operating profit decreased by 7%, reflecting the shortfall renewables output of around 10% below prior year due to disposals and weather conditions. Together, these core businesses contributed over 90% of group adjusted EBIT in the year. Elsewhere, in our complementary businesses, Thermal demonstrated its value with strong operational performance of combined with higher utilization to deliver system flexibility, as evidenced by a 50% increase in response contracted by National Grid to help balance the system throughout 2021. Business Energy was severely hit by reduced demand as well as higher levels of bad debt as a result of coronavirus. Electricity performed relatively well despite an increase in non commodity costs during the second half of the year. EPM achieved a small adjusting operating profit, providing services across our energy businesses and the contracting business be sold to Aurelius was significantly impacted by a reduced order book and lower overall economic activity. There was a significant impact from exceptional items and remeasurements recognized within reporting operating profit. In addition to the £878,000,000 of exceptional net gains from disposal of non core assets and the £600,000,000 revaluation gains on commodities. There were further exceptional items recognized in totaling a net £28,000,000 loss. These included fair value uplifts on equity sales, of adjustments and prior year exceptional transactions, releases of unutilized provisions for coronavirus and an impairment on Great Island. Our existing plan for £7,500,000,000 of capital investment to March 2025 includes significant investment in SSCN's transmission network to connect renewable generation. Constructing with Equinor and ENI, the world's largest offshore wind farm at Dogger Bank. Constructing with Total, Scotland's largest offshore wind farm at Seagreen. And on Shetland, constructing Viking, one of Europe's highest yielding onshore wind farms. With lower than expected expenditure in 2021, We expect capital and investment expenditure to increase in 20 1, 20 22 to around £2,000,000,000 SSE remains committed to delivering its £7,500,000,000 capital investment plan to 2025. Indeed much of this is now committed. With strong additional opportunities beginning to merge right across the group, we expect to provide an update on our CapEx plans at our interims in November. This will include more detail on 3 significant transmission projects that we'll touch on briefly in a moment and investment opportunities that we see potentially emerging for other parts of the group. SSE's strong balance sheet is underpinned by high quality assets and following the success of the disposal program, adjusted net debt and hybrid capital reduced by £1,600,000,000 to end the year at £8,900,000,000 We indicated in November that we are targeting a net debt to EBITDA ratio at the lower end of 4.5 to 5 times range between 2021, 2022 and 2024, 2025, and achieved this at 31 March 2021 when the ratio was 4.6 times. Our S and P credit rating remains at BBB plus data outlook and our Moody's rating remains at BAA1, albeit on negative outlook. These compare favorably to peers and in the event of any downgrade, financing our current plans would be entirely manageable. Over the past year, we have reaffirmed our standing as the largest issue of green bonds in the FTSE 100. In March, SSCN Transmission issued a new £500,000,000 green bond, a 4th 5 years. And we also set out a new framework for issuing innovative sustainability linked bonds in the future. This together with over £2,000,000,000 of Eurobonds and hybrid securities issued in the first half of the year since we have good liquidity with £1,500,000,000 of undrawn committed facilities and 1,600,000,000 pounds of cash and cash equivalents at 31 March 2021. Our £7,500,000,000 capital investment plan continues to be fully financeable, consistent with our net debt to EBITDA target and does not require any changes to our capital structure. Well chosen partnering is now a key part of SSE's financial strategy. SSE is well placed to manage development risk and can create value from selling down stakes to retain typically 30% to 40% of a project and working with Equity Partners for construction or operation. This approach brings benefits including securing developer premiums, reducing single project exposures, containing non earning debt and brings in partners with different risk appetites at their preferred stage of the project cycle. Dogger Bank AMV stake sales showed the value SSE can create, bringing in just over £200,000,000 of cash proceeds and gains on sale. We expect to progress with the sale of a stake in Dogger Bank C during the first half of this financial year. We have been clear that we would also consider in time extending our partnering approach, potentially through sales of minority interest stakes in our electricity networks businesses. These are core businesses and we will retain control, but minority partners remain an option should we consider that the release capital could facilitate growth opportunities in network businesses and elsewhere. At SSE, we have repeatedly demonstrated through effective capital allocation and optimal capital recycling and partnering that we can take advantages of the opportunities we consistently create. This wealth of assets and options, we have every confidence in our ability to continue to do this. SSE's first financial objective is to remunerate shareholders through dividends, and we're recommending a full year 2021 dividend of 0.81p This takes the total dividends declared to around 14.75 since SSE's formation in 1998. SSE continues to target dividend increases in line with RPI in the following 2 financial years as set out in our 2023 dividend plan. Adjusted EPS for the full year is 0.875p with reported EPS of 215.7p reflecting the gains and disposal of non core assets as well as the positive mark to market movements. Having weathered the pandemic and with high quality net zero aligned assets and options, we see considerable potential for future growth over and above current plans. Looking ahead, We are clearly in a strong position to create lasting value for shareholders and to reiterate their investment with dividends going forward. I'll hand you back to Alastair. Thanks, Gregor. In December, we welcomed the Prime Minister to Blythe, where we were testing blades for Dogger Bank, U. K. Government's endpoint plan, its energy white paper and its new more ambitious 78% carbon reduction target for 2,035, all show how net zero will shape the U. K. Policy landscape for years to come. The Irish Climate Action Plan is doing the same in Ireland and all around the world. Opportunities that have been created for companies like SSE, which have the right capabilities in developing low carbon infrastructure. We have the wind in our sails, but this strategic alignment is not an accident. We have quite deliberately and over many years recalibrated our business to focus on tackling climate change. Renewables are at the center of every projection, with a trebling of U. K. Capacity widely expected by 2,050. Clearly, we're a leader in that field, leading development of more offshore wind than anyone else in the world right now and seeking to diversify our pipeline internationally. Smart grids at the transmission and distribution level will connect renewables and accommodate the electrification of heat, transport and other sectors. The Committee on Climate Change believes this could wk electricity demand by 2,050. And with the production of green hydrogen on top of this, they predict it could triple it. And CCS, hydrogen, batteries, storage and floating offshore wind are all seen as having key roles to play in the technology mix in any credible net zero power system. The opportunities for us to see with our clear strategic focus on electricity and net zero alongside our sustainable business model and our presence across key parts of the value chain are simply immense. Of SSE understood the economic opportunity associated with social and environmental sustainability long before the notion of ESG took hold. Our strategy deliberately seeks to create value for both shareholders and society because our long term success is secure if anchored in the public interest. Using the framework of the UN Sustainable Development Goals. We have 4 2,030 business goals aligned to them, which was set in 2019, and we are progressing well against them. We were invited to be a lead sponsor of COP26 in part because of our well established ESG credentials. And this year, we signed up to the Race to 0 campaign and set targets aligned to the 2015 Paris Agreement validated by the Science Based Target initiative, which gives a verifiable line of sight towards a well below 2 degree trajectory. Of SSE believes the S in ESG is important, too. Our just transition strategy, the first of its kind by corporate, recognizing that social consequences of net zero could risk the public mandate to tackle climate change. SSE's continued championing of fair tax, of real living wage and green job creation is integral to a just transition. SSE welcomes engagement with the ESG community as we continue to evolve our policies, practice and performance, ultimately, in clean energy through a wealth of opportunities. And I'll now hand over to Martin to cover those in the Energy businesses. Thanks, Alastair. We are currently building almost 4 gigawatts of wind capacity and it is worth spending a moment on these ongoing construction projects. At 1075 Megawatts, Seagreen will have a load factor of 54%, producing around 5 terawatt hours a year. We are on track to commence offshore substation platform and foundation installations in Q3 2021 with 1st power expected early next year and full power targeted at the end of 2022. Of course, with 58% of its capacity not currently attached to CFD, there is the potential for Seagreen to compete in December for the uncontracted part of the project. We have Seagreen 1A situated adjacently, which will benefit from synergies and shows our ability to find extensions to key developments. Design and development work on Seagreen 1A is ongoing, which will inform the JV decision whether to bid it into AR4. On Dogger Bank A and B, onshore construction is going well. We expect to start offshore construction on A in a year's time, ending for 1st Power in summer 2023 and full Power in spring 2024. Delivery of Dogger Bank B follows 1 year later. But SSE is creating value well before First Power. The total consideration of £206,300,000 for 10% of Dogger Bank A and B clearly created value for shareholders. And there is more to come. The 3rd phase is being developed, and we hope to reach financial close of progressive stake sale later this calendar year. The Dogger Bank projects will cumulatively contribute around 18 terawatt hours of additional renewable output for the U. K. Electricity system annually. They will create hundreds of direct jobs and thousands more in the supply chain and we were delighted that on the strength of orders from Dogger Bank and with our support and efforts, GE were able to commit to investing in a new blade manufacturing facility in Teesside. Viking, at 4 43 Megawatts, with a load factor of 48%, will be among the highest yielding onshore wind farms in Europe, producing almost 2 terawatt hours annually. Construction is progressing well with work on the DC substation starting this summer, turbines in early 2023 and completion plan for autumn 2024. The wind farm has the option to enter AR4 later this year, but as with Sea Green is not dependent on this. Elsewhere onshore, we've started building Lena Lee in Ireland and have achieved first power at Gordon Bush Extension and incredible achievements by the delivery team during the pandemic and challenging Scottish winter weather. It shows again the strength of our capabilities in major project delivery. Beyond these flagship projects, we have a healthy pipeline and a renewable output target of 30 terawatt hours a year by 2,030, which we expect to exceed. Delivering our current pipeline alone will see us add on average of over 500 megawatts of renewables capacity each year to 2,030. With the opportunity to add to our pipeline through Scottwind Alongside the work we're doing to identify opportunities internationally, we have clear aspirations to reach a run rate of at least 1 gigawatt of new assets a year during the second half of this decade. Turning to onshore, we have identified a further 10 new early developments totaling over 500 megawatts in the last year. Clearly, seabed auction prices were at a premium in the recent English Crown Estate process. Only time will tell whether those projects will be economic, but we retained our capital discipline and the prices paid by others underlying the quality of our own pipeline. Crudely applying the average winning option fee to our existing U. K. Seabed pipeline would value attach £3,500,000,000 Today, we already have an enviable range of seabed options, all of which are likely to be needed if the U. K. Is to meet its targets, of potential to add to it. The Scottwin process, which has capped lease fees, will help ensure Scottish projects remain competitive, of minimizing costs and placing greater emphasis on developers' credentials. Our partners are Marubeni, who have deployed floating technology in similar sea conditions at our S. Fukushima forward project and Copenhagen Infrastructure Partners CIP, who worked with us on Beatrice. With the U. K. Targeting 1 gigawatt of floating wind by 2,030, the technology is clearly an area of interest. Opportunities could come from the Scott Wind process and the recent announcements of a new crown estate leasing amount. The policy environment in Ireland is also highly conducive to renewables, albeit on a smaller scale. The updated Climate Action Plan proposes a doubling of onshore capacity to 8 gigawatts and an offshore wind ambition of 5 gigawatts by 2,030. This will be needed to deliver on the commitments in the Climate Action Bill to halve emissions by 2,030. We were successful in the 1st res auction last year and with the 1st offshore auction to be scheduled in 2022, We are well placed with our Arco bank projects. Arco is 520 megawatts and our most advanced projects, but it is not our only one. We have early stage options at Braemaw Point and our Celtic CRA site. As in the U. K, we believe that increasingly ambitious targets mean all of these projects will need to be built in due course. We will always have a U. K. And Irish core, but a more internationally diverse pipeline can unlock for further renewables growth. We are primarily interested in offshore and onshore wind, where we are well placed to export our capabilities, working with local partners in growth markets. We are partnering with Asciona, a leading Spanish renewable energy company to form a fifty-fifty JV since the emerging Iberian offshore wind markets. These markets will not reach the size of the North Sea, but over the longer term are clearly interesting. Meanwhile, we are also partnering with CIP once again and Danish energy company Andel Holding on the tender process in Denmark to develop the 800 to 1000 Megawatt of small wind farm off the country's West Coast. These are initial steps taken with partners who have the local knowledge that complements our developer expertise and there will be more to come. Northwest Europe and North America have wind potential onshore and offshore, whilst Japanese offshore wind is of interest too. And whilst we see plenty of opportunity, as ever, a measured approach with capital discipline will guide our decisions. We showed you this slide before and it brings together our offshore wind pipeline, which could be delivered before 2,030. It shows the wealth of our deliverable options this decade with work ongoing to expand the portfolio beyond this. Of course, with major projects like these, timescales will change in line with a range of factors, but their ultimate delivery will be key in meeting offshore wind targets set by governments in the UK, Ireland and beyond. It is a strong pipeline, which will create a lot of value for shareholders and wider society. We were operating hydro long before people knew what climate change was. Today, our 78 hydro stations in Scotland provide clean, flexible power that is critical to the system and their performance in the balancing markets this year was very strong. And we continue to make incremental investments to continuously improve performance. We anticipate that hydro will continue to be remunerated for its flexibility and also alongside our wind business will benefit from a strong and upward trajectory of carbon prices. Hydro is part of our heritage but also our future, as demonstrated by its GBP 269,300,000 EBITDA contribution in the last year. The importance of flexibility will only increase in renewables led electricity system. And in hydro pump storage, we have Nature's battery. Of. Lithium ion batteries, which we are exploring on the SSE estate and potentially beyond, can offer local flexibility by generating for up to 4 hours. But Coriglas offers greater potential. Imperial College London has estimated that the equivalent of 3 Coriglas schemes, 4.5 gigawatts, to save up to £690,000,000 per year in system costs by 2,050. And there are 4.8 gigawatts of projects across the U. K. Coli Glass could be the U. K. Largest pumped hydro storage project and the first built in over 30 years. Located in the Highlands, the consented 1.5 gigawatt projects would have 30 gigawatt hours of storage, more than doubling existing U. K. Capacity. It can power 3,000,000 households for not 4, but 24 hours. Construction would take around 5 years at an estimated £1,200,000,000 to £1,500,000,000 and its life would exceed 40 years. The system benefits are huge and include reducing wind curtailments and helping accommodate more wind on the system, maintaining grid stability and displacing fossil plants. To progress to investment, it does not need subsidy, rather a revenue stabilization mechanism such as that used for interconnectors. And we are urging governments to show leadership ahead of COP26 by facilitating the policy reform needed. All credible pathways show that unabated thermal generation has an important transitional balancing role to play in ensuring security of supply whilst the U. K. Decarbonizes. This is underlined by the fact that in 2021, our fleet saw a 50% increase in response contracted by National Grid to help balance the system. We have also seen spark spreads trend to more attractive levels. However, we are in no doubt about the need to decarbonize and repurpose our fleets to the net zero world. And while some companies simply choose to sell up, that does nothing to address the underlying challenge of finding low carbon ways to generate electricity flexibly nor does it help any just transition socially. And we are making progress. In 2021, our thermal plant emissions were at their lowest level since records began in 2,001. And in this morning's statements, We show we are well on the way with our key science based targets. Our new highly efficient QB2 CCGT will displace less efficient generating plants on the system. And in terms of SSE's older plants, with the exception of QB2, our JVs at Marchwood and Sea Bank and Great Island of. In Ireland, we cannot envisage any of our thermal plants running into the 2030s unabated. Despite year to year variability, We expect to meet comfortably our absolute emissions and carbon intensity targets by 2,030 at the latest. Meanwhile, our partnership with Equinor to develop plans for a number of first of a kind low carbon power stations in the U. K. Humber region as well as at Peterhead could see us build the U. K. 1st power station with CCS and the world's first 100% hydrogen fueled power station. With strong government support and well located existing assets alongside a strong carbon pricing backdrop, since there are clear tailwinds for our future low carbon thermal portfolio. I'll now hand back to Alastair. Thanks, Martin. With a wealth of renewable resources in the north of Scotland, transmission has a vital role to play in transporting the electricity to demand centers further south. Of its RIIO T2 business plan, a network for net zero reached a final settlement of nearly $2,200,000,000 of improved investment in making the network fit for the future. While the bulk of the price control settlement matched our own and our stakeholders' ambition, which we're now focused on delivering, the financial parameters did not. Our appeal, echoed by the rest of the industry and now progressing with the CMA, is technical in nature. It centers on the cost of equity, which does not reflect market conditions and the flawed outperformance wedge as well as exposure to under recovery to Neuhaus stand loss of appeal rights. While customer bills must be minimized, appealing is the right thing to do. Our relationship with Ofgem remains constructive is not preventing us from delivering our stakeholder led plan. In addition to the baseline settlement, Ofgem has also approved the Shetland HVDC link, which could see over 6 $150,000,000 of Totex spent to connect generation and secure Shetland supply. Construction has begun, and the project remains on track for completion since 2024. Shetland plus our baseline spend gives us a certain view of expenditure across T2 of around £2,800,000,000 this would take transmission RAV to above £5,000,000,000 by financial year 2026. All expenditure expected under our certain view is consistent with SSE's existing £7,500,000,000 CapEx plan. Growing a network to meet net 0 will require investment over and above the baseline settlement, and this is reflected in Ofgem's use of uncertainty mechanisms. The extent of the additional projects approved by Ofgem remains to be seen, but we believe the case for greater ambition is strong. We'll be seeking to use the new mechanisms this year. Taking increased Scottish wing capacity south involves progressing the proposed East Coast HVDC link from Peterhead to the Northeast of England to meet the 2029 energization date, and we welcome Ofgem's recognition of the need for this investment in a consultation published earlier this month. Capacity reinforcements in our Gulf to 2.75 KV as as well as replacing the Fort Augustus to Skyline are also planned with initial needs cases for both projects due to be submitted to Ofgem this year. Further investments to connect renewable generation through the volume driver uncertainty mechanism are also likely. Taken together. We will see additional Totex over the Rio T2 period of more than £1,000,000,000 potentially taking total spend to over £4,000,000,000 and RAV to in excess of £6,000,000,000 by 2026. This is an uncertain view, with investments remaining subject to a range since including generator commitment, planning and, of course, Ofgem. Our assessment of the likelihood and cost of these additional projects is likely to form part of our updated CapEx plans in November. Much of what I've outlined is likely to cut across T2 and T3, but there could be further investment needed. Scott Wind, for example, is expected to unlock up to 10 gigawatts of new wind, meaning further system upgrades and a likely second HVDC link from Peterhead to England. And SSCN Transmission continues to work with stakeholders on proposals for Mainland connections to the Western Isles and Orkney. We can see a clear path to a near tripling of connected capacity from 8 gigawatts today to 22 gigawatts by 2,030. Of. Electric vehicles and electric heat demand will increase dramatically over the coming years in line with government policy. Working with consultants, regen and local stakeholders, We have projections showing a potential in area increase of EVs and heat pumps from around 30,000 each today to 5,000,000 by 2,050. ED2 will be a critical price control in driving net zero delivery, and we are currently finalizing the business plan we have co created with our stakeholders and customers. It is an ambitious but robust plan that will deliver a local and inclusive transition to net 0 by prioritizing strategic investment to create the safe, resilient and responsive network that our customers need, of providing a trusted service for our customers and communities to empower them with innovative solutions and support and collaboration to create smart, flexible, local energy networks. We expect an increase in investment on ED1 rates to keep pace with net 0. There'll be an uplift in load expenditure to ensure local networks are not constraining net 0 and an increase in non load and support costs to create a resilient foundation. To recap, today's results show how much has been achieved by SSE in the face of a global pandemic and how much potential the group has for growth and value creation. Our strategy is well aligned to political, economic, societal and environmental priorities of increasing the targeted mix of low carbon electricity assets and infrastructure businesses. We have an enviable and increasingly valuable renewables pipeline, which we're holding and building and diversifying. Transmission, distribution and thermal are also all poised to provide further material growth opportunities. We have delivered on our financial commitments and created value in our disposal program. Financially. We have headroom and an asset and development portfolio that provides additional funding power to grow the business further. At SSE, we are powering change. Thank you. We'll take questions now, and I'll therefore hand this back to the operator, Sharon, please. Your first question today comes from the line of RJ Patel, Goldman Sachs. Please go ahead. Your line is open. Good morning, and thank you for the presentation. It's appreciated. I've got three questions, please. The first one is on raw material costs. We've seen quite substantial increases. Could you walk us through what exposures are hedged out and when and where the exposures may lie. Just to understand better sort of how that process sort of works from the point at which you get an auction win to actually final investment decision. And does that impact of the returns of Dogger Bank C at all. Secondly, just on the balance sheet, like huge amounts of opportunity here of clearly and what you've highlighted in the presentation. And also just changes that happened in the earlier seabed auction So in regards to the fees and the requirements that has, does that change how you maybe look at leverage and what kind of capital you need for investment? And When do we have better clarity of how you fund that, investment opportunity that you see ahead of you? Will that all come in the capital update later in the year or do we wait later for that? And then finally, just very specifically, when do we hear about your dividend policy beyond 2023. At least the sort of by latest X, we would have a view here. That would be really helpful. Thank you. Okay. Thanks very much, A. J. Look, well, I'll probably Martin will probably cover the bulk of material cost increases and Dogger Bank UFC. I think we've got well, warm roots to all that. Look, I'll do dividend quickly and a little bit of balance sheet, and then Gregor if you can maybe fill some of that in as well, because that second question was quite a long one. We might all have a crack at that one actually. But right. So dividend, I think the key thing to know about dividend is that the policy stands through until 2023. We intend giving an update on the future of our dividend policy within the next 12 months. And I think the other thing that you need to know and hopefully people realize is, we understand that dividends are important and we are very committed to remunerating shareholders with dividends. So I think you'll see a clear update on that over the next 12 months. Going back to seabed auctions and leverage and things like that, I suppose just at a high level, we're very clear that we've got the 7,500,000,000 some plan. We can run through in a bit more detail, if you want, Greg, to maybe do that, what additional things may be facing us over the course of the summer. But we're very clear that we can fund all the things that we've got at the moment. We have a very strong asset base and the opportunity to recycle capital from it if additional opportunities come our way. And as you'll have seen throughout the presentation, there are a number of those opportunities there. But Gregor, it's slightly long complicated question, but do you want to A. J, my view in this, I've been in this job a long time, having opportunities and options of great position for Utility to be in. And SCC is one of those companies that has shown of really progressive in how we partner and how we recycle capital into kind of value of enhancing opportunities. So I think we will update the market in November on that CapEx plan, which could include some of the transmission spend that Alistair talked about, some renewable opportunities. And clearly, if we could get the UK government forward on pump storage, Craig Glass could be part of that, and that would be really exciting for us. And we will give details to the market. How we fund that, I'm very optimistic that we have the capability to do that through a mixture of of recycling capital and partnering, as we've always said, and we're confident in that. A. J. Just on your question, Doug Wain. See, I mean, look, I think we're well used to building out big of comprehensive projects, and we are well used to projects having ups and downs. And obviously, raw material costs have now gone up, of But equally, so has the value of sterling, so has the value of carbon, so has CPI, RPI, etcetera. So there's ups and downs in projects. Of course, there are, but we don't have any exposure for projects which are currently in construction. Of Just to be clear on that, if you just saw on that last part, You said you have no exposure on assets under construction. Does that mean you do have exposure on Dogger Bank C because it hasn't had final of investment position. Yes. So to be clear, so Dogger Bank C will be facing into a higher raw materials of context, but also will be facing into a strong sterling outlook and other things that are pretty positive for you, including carbon prices on kind of commissioning loads. There's always ups and downs. They're kind of these things, obviously, prices move all the time and all that will be dealt with as we go through fit. So to A. J, to answer your question, existing projects are all locked in. Dogger Bank C will have a lot of it locked in. Not everything is locked in, but as Martin said there are ups and downs within Dogger Bank C, and that's I think within what we normally see within projects. So I understand the question because We're in a bit of a super cycle or some sort of cycle, but there are ups and downs there and some things we're benefiting from and some things we're not, but we don't have any current concerns about that. Okay. Very clear. Thank you very much. Thank you. Thanks, A. J. Sharon? Thank you. Your next question comes from the line of Martin Young from Investec. Please go ahead. Your line is open. Yes. Good morning to everybody. Hope everybody is well. I have, hopefully, 3 quick questions. The first is on the hedging policy. I note that you've alluded to a little bit of a tweak in relation to your view on how capture prices might pan out. Wondered if you could just give a little bit more explanation on what you are endeavoring to do there and what the benefit might be of that slight change. The second question relates to the upcoming EB2 of business plan. If I look at the CMA's report decisions on PR19, of very clear message coming from that about positioning the cost of equity to incentivize of the construction of network assets, particularly where resilience is required. I think if there's ever a network subsector that needs investment, that is electricity distribution, given that everything's coming down of So would you be looking for a cost of equity there that is higher Then wherever the CMA might outturn in the transmission appeals process. And then the final question on distribution relating to the over and under recoveries. The over recovery that you alluded to in FY 2020, should we be thinking about that being given back in FY 'twenty two. Thanks a lot. Okay. That's fine. We'll let Martin start on hedging policy, and then Gregor and I will deal with the ED2 and the over under recovery piece. Yes. Good morning. So just on hedging, they're really kind of quite small refinements, which really take account of observations we're seeing in the market right now. So obviously, the last few months have been reasonably volatile in terms of power prices, and we just adjusted our of hedging policies right across the different wind, business energy thermal exposures that we have. Probably worth pointing out that We've consistently said that we have a well balanced portfolio and that thermal flexibility and hydro flexibility are seen as valuable defenses against wind intermittency of some of those exposures and variabilities that arise in markets that are transitioning. That is obviously still something that we'd firmly of standby. But really, these are relatively small refinements and pretty consistent with how we've established hedge policy in the past. Of okay. Just on the ED2 business plan, that's obviously due to come out and be published on the first or submitted on the 1st July, that will just be in draft Swarm and the real things coming in December. I think we've been pretty clear as of the rest of the industry in gas and transmission that we don't think Ofgem's proposals for financing of the industry are right, and that's obviously at the CMA at the moment. So we'll leave that decision to run through. But I think the underlying principle is that net zero is a huge challenge and far bigger challenge than I think the water industry are facing at the moment, to be honest, mean that we see a clear case, for getting at least what PR19 is suggesting or what the CMA suggested for the water industry plus a premium for the additional risks and issues associated with that build out and where we've seen government, for instance, on broadband look to incentivize the rollout of broadband in a different way. We would expect that to happen. Transmission and distribution are very different in various ways, but both have, particularly for us, similar challenges in the scale of investment that's required. And I do think distribution, bringing net 0 to consumers' homes and helping them decarbonize heat and power, giving them real assistance in doing that will be a very, very substantial challenge. I think our plan will step up to meet that. I think equally, Ofgem will need to step up to giving a reasonable return to make sure that investments or the huge investments that will be required for the decade plus to come, are attractive to international investors. And then finally, I think the over and under recovery, I'm going to defer to Gregor because I think he's more likely to know that than I am and I'll confess I don't. Yes, the £37,000,000 over recovery is a 2 year gap, so that will be adjusted for in 2021, 2022. So you're right there, A. J. Okay. Thank you. All right, Martin. Yes. Of. Thanks, Steve. All right. Good. Thank you. Sharon? Thank you. Your next Question comes from the line of Mark Freshney from Credit Suisse. Please go ahead. Your line is open. Hello. Thank you Thank you for taking my questions. I have 3. Firstly, on the other cost line within the P and L, normally, It's about €10,000,000 of cost a year. It's very low. It's jumped up to €60,000,000 or thereabouts this year. And I understand there are issues with how capital gains and allocation of cost to businesses are accounted for. But perhaps, Gregor, you could run through that. Secondly, for Martin, on capital discipline. I mean, every everyone who wins a project in offshore will tell you been disciplined, but there's clearly some doubt on that within the industry over the last year. So practically, when you go into projects and tender for contracts, how can we be sure you're disciplined? And What internal processes do you go through? And thirdly, One for Gregor on the network side. And we've spoken about the commodity costs within Indexation of turbine supply agreements and cable agreements, etcetera. But when it comes to the regulated network side, I mean, there's a lot of steel and concrete and copper that goes into your networks there. What are you of seeing there on the input side. And is that something that is easy to mitigate? Thank you. Of Okay. So, Gregor. Do you want to stop? I'll try to take the capital discipline of question. I mean, look, Mark, I mean, what I'd say about this, I mean, clearly, I think we've exerted of capital discipline in the past. I mean, obviously, we weren't successful in the last seabed auctions. We have high experienced teams. We've been in offshore for many, many years and seen probably the risks and also the upsides and the ups and downs we talked about in terms of projects. Also worth pointing out that I don't think we necessarily see an offshore project. It's just a kind of consent and Develop and build, it's a consent develop, engineer, build, operate, trade, take out and look after mitigate the imbalance, risk, etcetera. I mean, it's so it's right across the piece. And obviously, we have long established skill and expertise in that, which is all highly considered when we are considering of how to enter new development opportunities. So I'm pretty confident our record in this space is very, very strong. So, Mark, in terms of the copper unallocated, they cover a number of things in there. But the key 2 kind of issues I can comment about would be 1, of how we deal with the TSAs with OVO. So these transition down and over time, they've come down. So about 50% of that increase relates to us taking more absorbing more stranded costs, that's just natural. As a POC, we've got central costs that got smeared across a wider part of the group. And last year or 2019 2020. We've benefited in there from provision release. So ongoing, we'd expect that number actually to be moving up and adjusted for any efficiencies that come through in the corporate business. In terms of commodity costs, there is indexation, as you know, and indices that are used within of the Networks businesses. That is something that we follow. They're not exact kind of hedges, But at the moment, we're not seeing significant pressure coming through. But clearly, if commodity prices move up, We'll see that and maybe a bit of a lag effect in terms of how we recover that. Okay. And Mark, look, I think you've got a similar team here to the one you've had for a long time in terms of discipline as well. We continue to strengthen our processes. Greg is doing yet more work on SOX Light and things like the base report. So we had some pretty good and robust discussions with support there about how we're going to respond to all that. So I think you can be assured that we'll be if anything, we'll be doing more work on strengthening processes, but you've got a set of people here who've got a similar mindset, and we're very, very focused on value and driving value for shareholders. Of so hopefully that will give people some comfort. Thank you very much. Of Sharon. Thank you. Your next question comes from the line of James Brand, Deutsche Bank. Please go ahead. Your line is open. Of Good morning. Thanks for the presentation. Two questions for me, both on networks. So the first is on electricity distribution. You mentioned The massive increase in heat and EV related power demand and that the new price control period would include more of. I was just wondering, there's some theories out there that associated with all this massive increase in domestic demand that utilities might have to go round and just replace of pretty much the entire electricity distribution network to have bigger cables. And I was just wondering, Given that you're quite advanced now in your plan, whether you had any thoughts on that, whether you agreed that, that was needed? And if so, whether that needed to start. And you kind of hinted, load related expenditure would need to ramp a year. In this price control period, but if it's needed, whether it would be needed to start pretty soon. And then the second question is just on of transmission and the guidance you've given around RAB growth. I was wondering how direct procurement Fix it into that because there's a lot of confidence there around lots of growth coming through. Direct procurement is something that's been talked about for a long time And has never really gone anywhere as of yet and obviously requires some enabling from legislation from government. Do you think direct procurement is something that's going to happen? And if it does, whether that would affect of your ramp growth targets. Thank you. Look, on ED, our Our plan is going to come out in July, so I don't want to give too much away at the moment. But there is no doubt that we will need to do work on of load related work. I think we need to start that in that 'twenty three to 'twenty eight period. That will be critical. But I think don't underestimate the fact that we can sweat these assets. We'll be looking for a lot of innovative ways to sweat these assets. We'll also be looking to focus on areas where that load growth is going to tip, things like substations and or particular cables or lines in U. S. Into positions where they're potentially overloaded and focus on that. So it is definitely a long term game as well. So we're not going to have to go rip all the wires out from the ground immediately and change all that, but we do have to start some reasonably significant investment given what we're seeing in front of us. And I think if you wait till July, we'll be able to set that out, which is why we've not said as much as we might normally do about distribution this morning. On T and T guidance, when you say direct procurement, I think you're talking about of what we would describe as competition or competition proxy models and things of that nature. Essentially, that seems to have gone somewhat on the back burner. I think the challenges facing transmission businesses are such that there's of clear existing frameworks that work well. And we've seen cost of capital and things like that coming down and cost to consumers not rising very much at all. And so I think actually the real focus over the next few years is going to be on delivering on what we need to get the journey to net 0 started. I think also more generally in the T sector, I think sortation around ESO is more likely to be the place where people are focusing. I think that will take 3 or 4 years if people indeed decide to go ahead on that. And so I don't see any significant impact from direct procurement or competition coming into the sector of doing the course of this next price control, which is why we're reasonably confident with the numbers that we gave out and a possible forecast for additional of RAV growth coming from various additional projects that we mentioned in the presentation. Thank you very much. Thank you. And your next question comes from the line of John Musk, for. Two questions from me. Firstly, on the network disposals or potentially future network disposals in transmission electricity distribution, You sort of announced that, that might be something that will happen in the future at the same time as you've of reemphasize some of your growth opportunities. I'm just wondering if are those 2 linked and it's all about capital recycling rather than something that you may have done just to create shareholder value if the price was right. And then secondly, I know it's normal, but you haven't provided any earnings guidance at this stage. Of we lost John. I heard earnings guidance. Of We lost you, John. As well. So is there anything you can give us on earnings for FY 'twenty two? Of. John, unfortunately, we lost most of that, but we did hear earnings guidance and then a bit at the end, we lost about 10 or 15 seconds in the middle. But if your question is, can Can we give you any more on earnings guidance? We're clear. If there's anything you want to add, please do. And then Greg will have a go at both of those. Yes. I mean, on earnings, it's just we know COVID is coming out of the numbers. We know there are gains in last year. But essentially, it's a pretty predictable business. So just wondering why you don't to provide earnings guidance. Well, John, you've been following us for as long as I've been in this job, I think. And you know we rarely give guidance at the start of the year. I know it's the trend that the European companies like to give it. I think their businesses are even more predictable in some respects. We usually give guidance a bit late in the year. I mean, what I can say is our networks businesses will see of distribution showing a rebound from obviously the impact of COVID for 2021. And you'll see a good growth coming through the transmission business from the price control. And I think most of the analysts have that in the models. We will give guidance later in the year as you would expect. On the networks disposals. We've talked about this for a number of years. I've particularly talked about assets giving us value of future, and we'll consider it if the growth opportunities are such that recycling capital is in the interest of the business and shareholders. And we formalized that bit last year in June when we commented on it, and we're just continuing to kind of have that as a potential lever. We would always be looking at minority interest where it would be SSE having control on strategic and operational decisions for that business. Of purely a financial player who will be doing that. But we haven't taken any position on that. As you would expect, we're focusing on the SGN disposal. As what the key focuses on. Okay. Thank you. Thank you. Your next question comes from the line of Alex Lang, UBS. Please go ahead. Your line is open. Hi, good morning. Just two questions from me, one short one. But first, just on the SGM timing provided today, Is it fair to infer that the relatively quick time line you expect from formal commencement to completing the sale process since I might suggest initial interest has been quite good so far. Can you talk us all about maybe how the process so far compares to the last one a couple of years ago or a few years ago? On the other side. On one side, I guess, the environment for disposals may be better and there's more awareness on potential hydrogen usage. But there's also been Rio 2 and investor focus on sustainability and decarbonization is much higher. So any thoughts you could share on that would be great. And then just second, just briefly following up on your answer just now on the minority interest in the power networks. To confirm, would that be sort of capital recycling to fund better growth opportunities than you see in the networks or is it to help split the bill for networks growth? Thank you. Of, okay, so I'll let Greg comment on SGN. The minority interest sale is just there. We just as we've identified lots of Uniti to potentially spend more invest more than the baseline £7,500,000,000 CapEx span at the moment. People are always keen to understand how we're going to do that, and we're just laying out a variety of options, and we're not discounting the option, particularly given the very substantial growth that we're expecting to see in transmission of selling out a minority stake to a financial investor there. As Gregor said before, something has been around for a long time. We obviously haven't done it in this round of disposals, but it could come back into our thinking at some point in the future. At the moment, we are more focused on getting over that £2,000,000,000 target, which we're very confident of doing. And SG and A is obviously the next one of those. And Greg, perhaps you give a little bit on the Yes. I mean, look, I'm not going to get into details of the process, So we did appoint banks back in November. We have been working on this. And we've got a good of how we would take it forward. But clearly, we've got CMA process that is happening and that since it have some impact in terms of timeline. The process will formally kind of start in mid summer. And I think one of the things that I would say is that the focus on hydrogen and heat and the opportunities for hydrogen have had a lot more focus over the last year, in particular, last 6 months, and I think that bodes well for disposal of the business for our equity stake. Great. Thank you. Thank you. Your next question comes from the line of Bartek Kuebke from Societe Generale. Please go ahead. Your line is open. Of Good morning. Thank you for taking my questions. I would like to ask actually touch base 3 topics, please. Firstly, on the round 4 of the renewables CFD auction, which is probably upcoming this year. Could you actually tell us your feelings about where the prices could move into? I mean, not of course the absolute level, but at least the direction, I guess it will decline. And speaking of that, to sort of capture your risk perception, if prices go down, will you Still be willing to lock in Seagreen, the remaining 58% unsecured into lower prices to just sort of of derisk the project or it would be not of your interest? So that will be the first thing. Secondly, if we look at Dogger Bank C and Dogger Bank of B and A where you use where you will use 40 megawatts turbines and 30 megawatts turbines. Could you just tell us about the differences in terms of load Factors and CapEx per megawatt while using those. And actually, given that whether Using 14 megawatts turbines would actually positively impact the IRR of Dogger Bank C. So whether Dogger Bank C will have higher IRR than Dogger Bank. Of B. And lastly, if we can maybe speak a little bit on your conventional generation business in 2021. Could you perhaps split the EBITDA into what was the impact of spreads? What was the impact of capacity market revenues? And what was the impact of other system of system revenues and what is the sustainability of those going forward, please? Thank you. Okay. I suspect the last one, unless Martin's going to have a long time. We'll probably come back to you offline just on going through some of that when Martin can maybe give some on around 4, I'm sure Martin is eager to comment. But I think ultimately, as an industry, we're all interested in driving the price since down because it drives the price down to consumers. Obviously, the prices that we reached in the last round are well below current market prices. We heard earlier on this call, pressures on commodity prices as well, which are bound to play into AR4 in terms of and just in terms of steel and copper and things of that nature. So I think there's a lot of variables in there. I think we got to some great prices, ourselves and our partners as the most successful bid as last time, whether people will be higher or lower this time, who knows. We're certainly not going to ahead disclosed to you or anybody else in the market what our bidding strategy is in respect of those plants. The only thing is We know that we've got great projects. We know that we've got excellent people, and we've got a track record of winning auctions. And I think that, that will dictate what we do. But beyond that. I think you're going to have to wait and see and form your own judgment somewhere commodity prices and other things, seabed costs and everything else. So Martin, maybe you want to have a go at Dogger Bank AB and C and then anything on conventional. Yes. I mean just on of Doggone K B and C. I mean, clearly, kind of bigger turbines yet, better load factors. I mean, 57% load factor is our expectation if you think about how that compares to other offshore wind farms out there. Obviously, that's significantly higher. And Obviously, good for project economics. It's also good for looking after things like balancing risk. There's probably less balancing risk as a consequence. So that's all a positive. Just in terms of conventional, yes, it's quite a complicated question to answer. I mean, the only thing I'd point out and probably alluded to this earlier The conventional thermal fleet obviously did very well in the balancing mechanism. We saw the need for more balancing events, not least kind of cold weather events in January probably certainly took the eye, but also offering balancing last summer against other system issues. So the thermal fleet performed well. Our flexible renewable fleet also performed well against that. And I think it again validates of our view that, that sort of balanced portfolio flexibility to look after wind insubitancy really does offer a stronger portfolio. So beyond the specifics, I think we'd have to take it offline. Okay. Thank you. Thank you. Your next question comes from the line of Dominic Nash from Barclays. Please go ahead. Your line is open. Of Good morning, and thank you for taking the questions. So 3 for me, please. The first one going on offshore wind. Could you just give us some color on the Scottwind auction? Is it still happening this year? And of how many gigawatts in total would be you would be sort of bidding for in that. Secondly, I thought it was quite interesting. I went through your results. I found no reference whatsoever to the recent Scottish election, any reference to referendums, independence, SMP. I'm not going to reverse the question around here because usually you're just going to get all the risks. Of what are the opportunities that you see to England if and renewables to sourcing to England. If Scotland were to go to independent, I think the taxonomy rules would change on how you treat carbon emissions, etcetera. And England is a captive market to Scottish Renewables at the moment. Would that mean that you could use your Irish and maybe Scandinavian of renewables to import to England rather than Scotland to give you opportunities. And so following on from that, are you starting to see or should there fundamentally be a difference in the valuation of an offshore Scottish wind farm versus an English offshore wind farm. And then the final question I've got, and this is kind of probably some feedback and I'll be interested if somebody disagrees with me on this one as well. I get feedback from a lot of investment of investors that you're accounting is becoming increasingly difficult to follow. You quote proportional EBITDA and EBIT. You now include developer gains on that, which adds significant volatility going forward. I don't see an underlying EBIT or EBITDA as Alstede would report. Of you've consolidated CapEx and net debt in your numbers. And again, like, on things like SG and A, are they in or are they out on assets held for sale? Will you be coming up with a sort of a cleaner sort of pure number and again like that $7,500,000,000 CapEx number. I've got to be honest, I scratch my head at that. I don't actually know what that means. Is there any chance that you can come up with an underlying earnings, underlying EBIT, sort of a cleaner accounting going forward to help investors. Thank you. Okay. Well, on accounting, because I don't have accounts, I think we do give very clear underlying numbers. I mean, there's a lot going on in our business, and I'll let Greg and deal with the details. But I mean, the CapEx is the CapEx that we put into these things. It's just as simple as that. The fact that there's project financing or somebody else owns a portion of them means that we might be building £10,000,000,000 of the projects, but we're already putting a certain amount of money into them. So we're very, very clear what we're putting in cash, either to wholly owned assets or into JVs and things of that nature, and we have a very clear EBITDA or I think we do, but maybe I'm too simplistic. So Gregor, I'm sure Can you also say that the EBITDA includes the project finance that you quote, but your CapEx doesn't? Say that again. So I'm not sure we fully understand you. But Say it again, and we'll try and deal with it quickly now, but we may need a wider conversation. We think we're reasonably clear, but anyway, right. What did you say was included in EBITDA and what's included in CapEx? Well, I'm just saying is the CapEx and net debt that you quote are basically sort of equity, of your consolidated numbers. But when you quote your underlying EBITDA and underlying operating profits proportionally consolidated, it just I realize that you're a complex company. I think on our EBITDA ratio, we're very clear. We don't take the EBITDA related to the debt that that business that the joint venture is geared at. So it's geared at 75%, 75% net EBITDA is not taken into account in the ratio. That's what you'd add, Martin. I think we're actually pretty clear on the numbers. There's a lot of moving parts as Anders has said. Remember, we're in our IFRS world where reported EPS is $2.18 and our adjusted EPS is 87.5 Yes. It's just a complicated world, Donnie. And we should take offline where you've got concerns. But I think we're pretty transparent on how we deal with it. There's a lot of detail that goes through. And I think we laid that out pretty well. You may not agree with all the adjustments, but that's something that you as an analyst can then adjust for. I think we've been pretty consistent over the years. So let's take that offline. I know we have this issue because Listen, reported earnings are going to become more volatile just because of the nature of whether and how people are looking for us to account for things. But listen, we are keen to make sure that you and other regions of our accounts and or our numbers understand what we're doing, and we think we have strong underlying performance. I'll deal with Scottish independence quickly, and then I'll let Martin deal with the offshore stuff. So I think that was quite a complicated We remain politically neutral. We're not going to take a view on whether there should be a referendum or not and indeed what the result is going to be. I think the key things for us are that everybody we speak to of whatever political persuasion is pretty focused on wanting to see net 0. And therefore, the assets that we're building across the UK, Ireland and further afield, but obviously particularly across the UK, are wanted and welcomed by everybody. And we think there'll be clear support mechanisms going forward for those. I think it's far too early to comment on the detail when it's not even clear when or and or if there will be another independence referendum, what the result is and what the results of all that might be. So I think differential pricing and things like that, I'm not seeing any of that right now. But if there is anything in that, you'll see it on when the results of the Scott win come out. That's happening on 16th July, and the results will be out, I think, probably close to November. But Martin will give you a better update on that. Yes. So, hi. Yes, so there's obviously up to 10 gigawatts on target lease, as Alice As mentioned, I think what you're probably alluding to is a delay that occurred as a result of the around 4 UK results, caused a little bit of delay, since that process is underway from July. And there are 15 sites that are currently available. Obviously, we won't comment on our specific bids or anything we're thinking about. Just in terms of the more general criteria, it's a more qualitative process clearly, including looking at kind of project concepts, delivery plans, but also capability and experience. And obviously, that we think we have very So right. There wasn't anything else on offshore. But does that sorry, because there were quite a few things offshore. I don't know whether that covers everything, Dominic. Sorry. Yes, that's all. Thank you very much. Okay, Great. Thank you. And look, we'll be in touch about the transparency or otherwise of the numbers as well. Thank you. Your next question comes from Deepa from Bernstein. Please go ahead. Your line is open. Thank you so much. I think my two questions were, firstly, amongst the investors, there's quite a lot of of skepticism about renewable returns. So in particular, would you be able to comment, in the last 6 months, do you I mean, the cost of capital may have changed, but do you expect the spread on your cost of capital to have changed in the last 6 months, whether that's because of for the entry of new oil majors, commodity inflation, lease inflation or any of these factors? So that's my first question. And the second one is obviously you've outlined a lot of of in the UK, whether that's renewables or in your networks. And at the same time, for the renewables business, you want to step Outside particularly, I mean, something like Japan, etcetera, I would have thought is far maybe Far left or east or whichever way you want to say it. So I'm just wondering, does it not make sense for you to focus on your whole market rather than try and also expand particularly of really further afield? Thank you. Okay. Look, renewables returns, I think we're earning strong returns on our projects. I think, as demonstrated by our ability to recycle capital out of them, and we expect to be able to continue to do that. You've noted we've got a wealth of opportunities, whether that be existing seabed extensions and things of that nature that we'll put in place. I think the entry of the oil majors, that's obviously going to be good for consumers. It's going to keep costs down. It's also going to make sure the industry has probably got enough capital to build out the enormous of amounts of plant that I think will ultimately be required. I think your last 6 months question, I don't necessarily see any of our returns dropping. I think the interesting thing for us and possibly for Scott Wind would be that given the high prices paid for the seabed down south to try and hit the 40 gigawatt target and then go beyond that. Those bits of seabed won most recently down in the UK, clearly got some significant additional costs, which are going to allow Scotland with a slightly higher transmission costs to compete with very well. So I think it plays absolutely into things like Marbank, Berwick Bank, Cbank 1A and things like that being far more competitive in future rounds for offshore. So I don't see if anything particularly impacting our returns at the moment. We always worry about competitors, but that's what keeps us sharp and that keeps us going basically. In terms of the opportunities, yes, we have a wealth of opportunities. But at the moment as we stand. We're a business which has huge capabilities. Our ambition and our desire to build out more renewables will be bigger than the markets that we think we're in currently in the U. K. And Ireland. And we have a lot of partners who want to work with us in other geographies. You mentioned Japan. Japan has got similar characteristics to Scotland. In terms of water. It's generally deep. It's generally looking at floating. Once the U. K. Goes beyond 50 gigawatts in the North Sea, you're going to need to do quite a lot of floating. The specific targets to get to 75 gigawatts and plus. So therefore, floating is going to be important here. We've obviously got a Japanese partner with us in Scotland, and it looks an interesting market. A number of our other competitors have gone there, and there's no reason why we shouldn't be able to do the same, particularly while we continue to be able to scale resources within our core businesses. Martin? Yes. Just to say, I mean, obviously, you're right. We've got a lot going on in our home markets. We've got a pretty measured approach to international and we've chosen partners carefully to leverage skills. And it's worth obviously mentioning that of JV partners who are happy to do additional projects with us, that's CIP in terms of the full opportunity. I mean, I think the key really is that the world is going to build 100 of gigawatts of offshore wind, and we've got a skill set that's highly transferable and highly valued. And we're world classed at building wind and building more offshore wind than anyone else in the world right now. And so that should make us considering such opportunities, but we are doing it in a relatively careful way. Does that of answer, what you wanted, Deepa. I think the other thing I'd add, Deepa, is that internationally, It's about pipeline for not just this decade, it's the next decade and the decade after that and it's building the business to be capable of that. So we're connecting that we are year. Very good position in the UK and Ireland, but we have to recognize that there are other players coming in to market. That may not last for decades to come. We still expect to be there, but we should diversify. And actually our shareholders of stats telling us that we think we should diversify a bit. So that's coming from shareholders as well. Okay. Thank you. Of Thank you. Thank you. We will now take our last question and the question comes from the line of Chris Laybutt From Morgan Stanley. Please go ahead. Your line is open. Good morning, everyone. Thank you very much for taking my questions. Just a couple of quick ones and then one bigger picture. In terms of the super deduction on and the impact of that policy on your effective tax rate. Can you give us any guidance as to how much that may impact your effective tax rate for this year and next year. A question on your hedging. It looks like you plan to increase your hedging slightly in your in the wind component, to increase wind capture from 85% to 90%. Just Just wondering if you can give some more details as to why you decided to do that. And then Martin, just a question really on the upcoming CFD auction later this year. You've got the 3 pots that apply for the different technologies. I'm just wondering which you feel would have the better supply and demand dynamics, which is a general question, not related to your project specifically. And perhaps the second part of that question is whether you see returns in the UK of more attractive onshore versus offshore or vice versa at the moment and how you see that developing in the coming years. Thanks very much. Okay, that's great. Well, let's get to the interesting one first, should we, Gregor, tax? So, Luke, I think it's early, Chris. I mean, Clearly, we will see some benefit, but the super tax deduction doesn't apply to CapEx as contracted. And we are long term business and obviously in our offshore wind projects. A lot of that CapEx is contracted for. And even for Dogger Bank C, by the time it's complete, we may not be up and of trading, so you don't get the full benefit there either. We'll see if that benefit come through kind of Airworks businesses. We're hoping that if we can accelerate on batteries, we can get that coming through. So we will see some benefit coming through. But you've got to remember, the corporation tax then rises to 25% in 'twenty three percent, 'twenty four So I think it will be 0.5% maybe a benefit that type of of benefit a year, but we will wait and see. It's too early to say. Yes. Hi, Chris. I mean, just on Hesia, I think Kind of referenced this earlier, it's really just a minor change. It's based upon observations on markets over the last 12 months, and we'll continue to keep that under review, but we expect any significant change year on year. Just Keep an eye on that kind of what happens in terms of wind capture. Then to your other question on of AR4 shares, I think, came in 2 parts. The I mean, obviously, we're not we don't know the final volumes on pot shares. It's a bit difficult to kind of answer a general kind of supply demand question on that and competitive question. So I'm not able to give you an answer on that. Then In terms of whether we see returns on U. K. Onshore better than U. K. Offshore, which I think was the second part of that question. I mean, again, I suspect our answer Europe. It really depends on a whole bunch of factors. I mean, probably what I would say is a very strong robust Carbon price is clearly helpful for renewables generally and is definitely creating a very good tailwind. And obviously, energy prices are up as well. Spark spreads also half and all of that plays into renewable space. But how will this kind of place through at the auction later this year, wouldn't be able to save right now. Okay. And sorry, just a couple of thoughts. I think we're encouraged by the floating piece. I think floating is going forward. I think if they don't offer very much. It might be quite competitive because I think a few of us will be interested in getting into that floating area. I think if they're a bit more ambitious, which you'd hope they'd be given given the amount of floating they're going to need, then I think that it will put that in a good place. Another thing I could sort of think. Interesting to see where we get to on transmission. I think transmission constraints are an interesting part of where people will get to on whether we can get the build by 2,030. I see that biting more and more. We've I think we've got to run hard as a transmission company as of the other 2, and Ofgem, in particular are going to have to run pretty hard to facilitate that 40 gigawatts by 2,030. And we're going to find out the answer to that pretty shortly. I suspect whether even that's achievable because there's a lot of work to be done on transmission. So I think that's the one thing I can say. Otherwise, I would agree with Martin. It's a bit tricky when you don't know what they're going for and all the rest of it. But they seem to have ambition. If they keep putting it in there, it will hopefully create enough price headroom to get a variety of different projects built because I think there are lots of companies, lots of our competitors who've got good projects out there and want to get us on this journey to net 0. Thank you very much. And could I just jump in with One quick follow-up just on the 57% load factor, Martin. Is that a net load factor? Is that a gross load factor, this is concerning? So It's a big number and we're quite excited about it. It's next. Okay. Thank you very much. Thank you, Ed. Of okay, right, Sharon. That's great. Thanks, Chris. And Sharon, I think you said that was the last question? I did, sir. I'll hand back to you for closing remarks. Okay. That's great. Look, really appreciate everybody dialing in and taking the time this morning. Of, hopefully, you've provided some clarity. It sounds like we've got 1 or 2 bits of clarifications come up afterwards. Please feel free to get in touch with the IR team, and they can get a hold of for us and other members of the team as well. Obviously, happy to try and answer your questions. We'll be on the book and investor roadshow as well next week for investors. Hopefully, we'll see a few people who've been listening in there and look forward to any further engagement over the balance of the day and over the next few days. But otherwise, thank you for your time. And Sharon, as operator, thank you very much for helping us conduct the call.

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