Good morning, and welcome to our full-year results presentation, my twelfth and final as SSE's Chief Executive. I'm joined today by Barry O'Regan, our Chief Financial Officer, and Martin Pibworth, our Chief Executive Designate. We'd be delighted to take your questions after we present another strong set of earnings for the group. Let me start with a few words on the performance measure that is paramount in everything we do. Our combined total recordable injury rate is at its lowest in three years, and within that, the performance among our contract partners is particularly encouraging. This has been an area of focus in recent years as our investment plan has grown. We believe our industry-leading immersive training program is having a positive impact, with more than 8,500 employees and around 1,000 contractors having been through it in its first year.
The initiative uses state-of-the-art technology to improve understanding of the impact and consequences of safety failures. In the wider interests of advancing workplace safety, we're extending the training to interested organisations outside of SSE. We've delivered world-class assets and met our financial objectives, demonstrating yet again the value we are creating from our five-year Net Zero Acceleration Programme plus investment plan. We offer a compelling investment case through our balanced business mix and ongoing investment. We have delivered strong earnings and dividend growth in line with guidance. That value can be measured not only in shareholder return today, but also in the tangible contribution we're making to energy security and affordability tomorrow. Performance in the year has been underpinned by steadily increasing high-quality earnings from regulated networks and renewables growth.
Over the past three years, we've seen our regulated networks asset base increase by around 60% as we continue to build a network for net zero. Renewables has also seen disciplined growth come through, with volumes increasing by around 40% from flagship projects such as Seagreen and Viking. Together, the contribution of earnings from regulated electricity networks and renewables has increased from around 60% at the start of the investment plan to around 90% today. This is before we break ground on the majority of our ASTE and LOTTI projects, or see even more volume flowing from Dogger Bank. The improved visibility of growth we now have allows us to upgrade our expected network asset growth rate from 15%- 20%, slightly ahead of the 15% growth rate in renewables volumes expected over the investment plan. Networks and renewables are at the heart of our balanced business model.
They're creating both immediate value and long-term earnings growth. We have always been clear that as opportunities evolve, we would flex the optionality we have, and that we would exercise both agility and capital discipline along the way. As opportunities for accelerated transmission growth have emerged, we've steadily upweighted our capital allocation to networks. That evolution continues today as we reduce the overall size of our capital investment plan to reflect the changed macro environment and policy and planning delays. It should come as no surprise that the vast majority of that reduction is in our energy businesses, where we have always progressed with strict discipline. Our portfolio of premium investment options in these businesses will be vital to the delivery of the clean energy transition, but we will only progress them when they offer the right risk-adjusted returns.
This means we are now working to a revised GBP 17.5 billion plan, of which around 60% is weighted towards investment to upgrade the transmission and distribution grids. The past five years have seen some extraordinary changes, from a pandemic to a world economic downturn and wars in Europe and the Middle East, and the unrest continues with rapid changes in tariffs, commodity markets, and policy. Throughout, SSE has continued to create value through focused investments in high-quality businesses that are exposed to strong, predictable regulatory environments. Regulated networks offer increased visibility over medium-term investment plans with stable, real equity returns and inflation protection. An increasing proportion of our renewables and flexibility assets also benefit from inflation protection through government-backed contracts for difference and the capacity market.
This provides a foundation for growth and value in almost any scenario, with ultimately inflation-linked earnings expected to account for around 70% of Group EBITDA by 2027 and 91% of existing debt held at fixed rates. As a clean energy champion, we offer reliable earnings linked to an unstoppable drive to electrification, and this gives us every confidence in meeting our 2027 target of 175-200 pence earnings per share. Electrification is not only central to everything we do; it is central to a decarbonized economy driven by renewables, networks, and flexibility. Each of these pillars underpins the clean energy transition, in addition to delivering strong earnings and dividend growth, whilst maintaining a strong credit rating. Over the past decade, we've rebuilt SSE on these three pillars, and Barry and Martin have been with me at every step as we have evolved and adapted.
Of course, I'm particularly delighted that the group's future will be in their hands following Martin's appointment as Chief Executive Designate. Martin's knowledge of SSE and the energy sector is exceptional, and I share the board's confidence that he is the best person to take the company forward. I'll now hand you over to Barry, who will take us through today's results before we hear from Martin on the operating outlook for each of SSE's businesses.
Thank you, Alastair, and good morning, everyone. I will now take you through the financial performance of the group in a year that was marked by improving earnings quality, before providing some more detail on how we expect earnings and our balance sheet to evolve into 2027. Our disciplined investment program continues to create sustainable earnings growth, and I am delighted to start today by noting our networks and our renewables businesses have each contributed over GBP 1 billion in adjusted operating profit for the first time. I am also pleased to deliver on the commitments we made for the year, with 160.9p EPS achieved despite the expected normalisation of profitability in our flexible thermal portfolio. We have continued to progress our growth-enhancing investment plans, delivering capital investment this year of around GBP 2.9 billion.
Turning first to our networks businesses, our combined transmission and distribution businesses delivered a 53% increase in adjusted operating profit. All of our licensed areas need accelerated investment to meet the clean power challenge, and to fund this, we receive a growing level of underlying allowed revenues. While both businesses had some timing effects, whether inflationary catch-ups for SSEN distribution or tax allowances for SSEN transmission, these were expected under price control forecasts. Overall, our networks businesses have delivered very strong financial and strategic performance in the year. The renewables business saw a record-breaking year with adjusted operating profit increasing by 25% to just over GBP 1 billion for the first time ever. Capacity additions from Viking, as well as a full year's contribution from Seagreen, drove an 18% increase in output to around 13 terawatt hours despite variable weather conditions.
A highly profitable year for the business in no way diminishes our commitment to capital and operational discipline. That discipline has meant we have taken an exceptional GBP 250 million non-cash impairment relating to the slower-than-anticipated build-out of some parts of our Southern Europe pipeline. With sector-wide delays affecting permitting and grid connections, build-out of this platform has been slower than originally planned. We will continue to create shareholder value rather than simply delivering volume, while sharpening our focus on efficiency in response to shifting market dynamics as we ensure the business remains fit and competitive enough to deliver on its potential in the coming years. Lower profitability from our conventional thermal generation and gas storage businesses should come as no surprise as we fully expected markets to normalize following the volatility seen in recent years.
However, the spark spread during the period has been low, with market distortion also affecting gas storage. While these businesses have performed strongly over the winter months to deliver profitability in line with guidance, this has been against the context of a challenging market environment. Despite this short-term challenge, the SSE Thermal portfolio and pumped storage hydro and batteries offered by SSE Renewables have a critical role to play in the U.K. energy system, and as Martin will set out shortly, their long-term value has never been clearer. Finally, our other businesses have delivered a 66% increase in adjusted operating profit over the year, which has been predominantly driven by strong performance from our customer-facing businesses. With a focus on serving customers, extending service options, and expanding their product portfolio, energy customer solutions continues to play a strategic role for SSE in both the G.B. and Irish markets.
Tight commercial and risk controls have helped these businesses navigate volatility and minimize consumer tariffs whilst returning margins to more sustainable levels. Although profitability slightly decreased in GB while an upgraded customer management system was implemented, we are already starting to see the business benefit from improvements made in customer data quality. Finally, it is worth noting we have now incorporated the activities of SSE Enterprise into other parts of the group to simplify the organizational structure whilst enhancing growth opportunities. Below the line, net finance charges rose, reflecting a higher level of net debt in the period, as well as interest on Seagreen project finance. Meanwhile, a declining tax rate was driven by the full expensing capital allowance tax relief available on our investment program, a decline we expect to continue as we will cover later.
In light of today's results, we are recommending a final dividend of GBP 0.43, taking the full year dividend to GBP 0.642, which is an increase of 7% on the prior year. Renumerating shareholders will always be an important part of our plans, and our commitments to delivering on the growth-enabling 2027 dividend plan remains. As we progress through the remainder of the five-year investment program, and with half of the investment made, our overall levels of debt remain low, and leverage ratios have fallen since the start of the plan. This is testament to the strength of the group's funding strategy during a period that has seen a huge amount of energy market and interest rate volatility. SSE has a strong balance sheet with room to accommodate an acceleration in investment.
In addition, leverage to the end of the fully funded plan remains consistent with being well within investment-grade credit ratings, with a net debt-to-EBITDA ratio expected to be around 4 times in 2027. Over and above the updated funding plan you can see outlined on the chart, we have a number of levers for additional investment to 2027 and beyond. They include additional debt capacity within strong investment-grade credit ratings, access to GBP 2 billion of additional hybrid funding, which we expect will continue to increase over time, a portfolio of capital recycling options and partnering opportunities, leveraging our proven track record of realising asset value whilst enabling growth. As part of this, a minority stake sale in our distribution business remains an option open to us.
Additionally, some discretionary CapEx remains within the existing plan and could be subject to cancellation or delay if the right investment conditions do not emerge. These levers offer additional funding headroom within our existing means. It is not an exhaustive list, and we retain full optionality on funding sources. One thing is certain: whatever funding route we choose over the decade ahead, any decisions will be based on the option and timing that will create maximum value for shareholders. You will hear us talk a lot this morning about discipline and efficiency, so I want to take some time to outline how we deliver that in practice. The chart on the left-hand side details our strict hurdle rate criteria by technology, which frames our disciplined approach to capital allocation. These are not notional rates; they are used alongside procurement controls and project-level contingencies to give us confidence to deliver strong, risk-adjusted returns.
We have applied that discipline in practice throughout the year, whether through deferring projects in Southern Europe or even closer to home with Berwick Extension, where we chose not to take a financial investment decision reflecting the risk-return profile at this time. With low levels of committed value and plenty of opportunities to deploy CapEx, we will continue to act with agility and discipline. As Alastair mentioned earlier, this agility and discipline will naturally mean that our investment plans will evolve to reflect market conditions. At the same time, our internal structures will need to evolve as well to ensure we remain efficient, competitive, and best able to deliver on our potential. To that end, over the last few months, we have been simplifying our organisational design to remove duplication in resources and enhance efficiency in operating expenses.
We expect that this exercise will deliver around GBP 100 million per annum of recurring efficiencies. Immediate savings are not the sole driver. The actions we are taking today will enable the most effective and efficient delivery of our growth tomorrow whilst ensuring resilience and flexibility. As with any long-term investment plan, expectations and assumptions will change over time to reflect the operating environment. The profit guidance for individual businesses will also change over time, but our overall outlook reflects a diverse and resilient business mix with increasingly high-quality earnings. In line with our usual practice, we expect to provide earnings guidance for the group later in the financial year. However, we summarise here our expectations for each business across the next two years. Our primary focus is on delivery of sustainable growth by the end of the plan.
We are confident about meeting our 2027 target of adjusted EPS between 175-200p, given the strength and clarity of the opportunities immediately ahead of us and our emphasis on discipline and operational efficiency. This slide maps out the earnings growth to come over the next two years from the 160.9p adjusted EPS announced today. In flexibility, we have already secured around GBP 150 million of additional capacity market payments in 2027 across flexible thermal and hydro renewables, increasing earnings per share by around GBP 0.10. Additional renewables capacity, principally Dogger Bank, which Martin will cover later, will deliver around a 40% increase in output. Our hedging approach has already locked in strong prices for that year, with over two-thirds of the merchant exposure hedged at prices of around GBP 75 a megawatt hour.
In networks, the 50% increase in gross RAV we expect over the next two years will deliver increases in allowed revenues, which will more than offset any timing differences anticipated. At the same time, the quality of our earnings continues to improve, with secure and visible revenue contracts as we pivot to where the value lies. We expect circa 85% of earnings to be driven by the networks and renewables businesses, and around 70% of EBITDA will be underpinned by regulated and contracted income. I'll close by reiterating that this is a particularly strong set of results that builds on the success of recent years. We've shown yet again the defensive value of our strategic focus on dependable inflation-linked earnings. I'll now hand over to Martin. Thanks, Barry.
I'm grateful for the kind words in Alastair's introduction, and I'm excited about the role I will take on after our AGM. We are the U.K. and Irish Clean Energy Champion, and my main focus will be in these core markets where the opportunity is huge. These markets and delivery of the NZAC Plus will be front of mind as we evolve the strategy that Barry, Alastair, and I have worked together on for a number of years. It is true that for the first time in the U.K., the political consensus on net zero is showing signs of fraying at the edges. Regardless of the politics, the climate science has not changed, and I genuinely believe that electrification remains an inevitable and unstoppable societal and investment trend.
The journey will clearly be non-linear, as we've seen in the ongoing debate about the validity of net zero targets, but I believe the ultimate destination is clear: electrified economies powered by renewables-led energy systems. Commercial possibilities for well-positioned players are immense, and thanks to its core integrated mix of businesses and assets, SSE is well set for decades of sustainable growth. Renewables will provide the bulk low-carbon power. Networks will be needed to transport it, and flexibility will be required for system security. We have a fantastic opportunity right now to lean into the networks investments and grow the group whilst always retaining the flexibility to pivot for future opportunities. While current market dynamics persist, it is particularly important that we continue to maintain discipline to ensure we create optimal value from the options in our energy businesses.
As we build out the energy needed to meet society's needs, this commerciality will be at the forefront of everything we do to ensure we maximize our opportunities. The U.K. government has set out ambitious plans for decarbonization by 2030, and while it is earlier days for the Irish governments, they have also been crystal clear in their focus to deliver a legally binding 51% emissions reduction target by 2030 ahead of net zero by 2050. These long-term ambitions are welcome, but they need to be accompanied by pacer policy-making decisions. We continue to see green shoots from governments, such as the commitment to progress U.K.-EU carbon price linking announced earlier this week, something we have long advocated for.
However, right now, there are a number of outstanding catalysts that will influence the future shape of the sector in the U.K., from decisions on market reform and zonal pricing to determinations on networks price controls and the parameters of the upcoming allocation round for renewables contracts. As these are resolved in the coming weeks and months, we will have greater clarity over the speed and scale of emerging opportunities over the next 12 months. We remain confident that our strategy, shape, and strength will serve us well in all likely scenarios. While we continue to engage to secure the best outcomes for all concerned, the reality is that even if progress slows, the scarcity value in our existing assets will fundamentally be worth more.
Ultimately, we have a portfolio that can respond to all likely policy scenarios and market frameworks, giving us confidence in our future earnings growth. In SSEN transmission, where we are creating the network needed to transport Scotland's immense renewables potential around the country, we have clear visibility of a transformational growth opportunity. Our near-term delivery is increasingly turning lines on maps into projects in the planning system and assets on the ground, and this year has seen major steps achieved, including consents granted on our Garland Kintyre and Fort Augustus reinforcements, groundbreaking on the Eagle Two and Awkley projects, and energisation of the pioneering Shetland HVDC link. We could also point to plenty of projects across the north of Scotland that illustrate our development, construction, and operational strengths.
Our confidence in these strengths has led us to upgrade our annual asset growth expectations from 20%- 25% over the plan. On this basis, we believe that the business is one of, if not the, fastest-growing regulated network in the world. Driving that growth into the future will be our REOT3 business plan, which will represent one of the most significant programs of investment ever seen in the north of Scotland, with around GBP 16 billion of approved expenditure and potential for GBP 9.4 billion of further uncertainty mechanism spend. The numbers alone do not do justice to the full extent of the social and economic benefit this investment will bring to the region. This includes new community benefit funding, projected to be over GBP 100 million, and a commitment to supporting the delivery of 1,000 new homes.
At the same time, we are underpinning inward investments in domestic manufacturing facilities and the creation of thousands of skilled supply chain jobs. This is a just transition, not just talked about, but in action, and the vast majority of this plan is required under any future energy scenario. There is also potential for further spend, including a second link to Shetland and investment well beyond 2030 to connect Scotland projects. T3's positive impact on customer bills, energy security, and economic growth can only be fully realized if the financial parameters are adequate to unlock the investment required and mitigate the related risks. With draft determinations due this summer, it is imperative that Ofgem provides fair returns and adequate cash flows for investors. Ofgem's ASTE and LOTTEY projects form the backbone of our business plan, equating to some GBP 16 billion of our investment over the five-year price control.
These projects are game-changing for the GB energy system, alleviating constraints faced by existing generation assets and underpinning the future energy system. They are already locked into our licence conditions, and we are progressing towards delivery at pace. All substation consent applications required for 2030 delivery have been submitted to the Scottish Government, with only a handful of major consents for the entire programme remaining. With supply chains secured for all but one project, faster consenting is imperative. We welcome the recent ambition from both U.K. and Scottish governments to speed up decision-making. This is clearly in the consumer interest, and some of it is already translating into action. We are well set to progress these projects, but the real test will be in the commitment to actual delivery on all sides.
We have played our part with one of Scotland's largest ever public consultation processes, optimizing our plans in line with community feedback. We're now waiting to see what comes of the commitment from Scottish ministers to a 52-week consenting timeline. Turning to SSEN distribution, we are two years into our ED2 business plan, and this year has seen record CapEx delivery alongside an additional GBP 106 million in approved uncertainty mechanism submissions. In our Scottish network, we are meeting the growing demand to connect distributed renewables, whilst our southern network continues to see higher than average uptake in EVs, combined with increased demand from data centers and large industry, given its geography. This has us uniquely positioned for near-term growth and gives us the confidence to target RAV of around GBP 7 billion by the end of the plan.
We are already seeing increased electrification and distributed energy, which requires a reinforced but also more dynamic grid system able to optimize supply and demand. This has been backed by a recent National Infrastructure Commission report highlighting the need for a new proactive regulatory approach and more than double annual load investment through to 2050. The system operator is in the process of producing regional strategic energy plans to enable this investment in an accelerated yet efficient manner, which in turn will inform the timing and scale of our own local network investment plans. With that work underway and the regulator already focused on ensuring the next price control delivers investments, the pieces to unlock the next wave of growth are falling into place. Having prioritized data and technology deployment to improve operational effectiveness, the business is well placed to deliver the growth ahead.
Turning to our market-based businesses, it is clear that the future operating environments will be shaped to a significant extent by the imminent outcome of the U.K. government's review of electricity market arrangements. The arguments for and against zonal pricing are well known, and given it remains an option under active consideration, it is important to reiterate that SSE has strategic resilience and a balanced portfolio that can operate within any market framework. Firstly, we envisage zonal pricing would have no impact on a transmission build-out that will drive the bulk of our medium to long-term growth, with the projects within ASTE and LOTTEY playing key roles in all future energy scenarios. Secondly, for our existing generation plant, we would expect some level of grandfathering arrangements to be introduced to ensure that investors are kept whole and that market confidence in the U.K. is not shattered.
Finally, this slide highlights that we retain an energy portfolio that has a surplus of flexibility in key zones and would therefore be less exposed to regional pricing outcomes than may have been assumed. It also underlines that when we argue so strongly against a zonal scenario, we are doing so on the basis of general market interest rather than our own. Fundamentally, we believe that zonal pricing will raise risk rates, push up the price of new infrastructure, and not necessarily fix any of the temporary constraint issues it is looking to resolve, which will instead be addressed through imminent network build. This will all impact affordability and will be to the detriment of all system users. We hope that policymakers understand this. With natural balance across the energy value chain, we have attractive options at our disposal to navigate the ensuring market volatility it would cause.
We continue to engage, but our position is clear: zonal is not in the market or public interest. SSE Renewables is a long-term business with a pipeline of premium opportunities that create options for deployment later this decade and beyond. However, those opportunities have not been immune to the macro environment and wider delays to planning processes over the past 12 months. Our capital discipline in this environment has led us to reduce both our investment and our capacity expectations. We are now targeting around 7 gigawatts of installed capacity by 2027, with around 1 gigawatt under construction at that point. The vast majority of this growth will be delivered by the first two phases of Dogger Bank and well-progressed onshore and battery projects.
Crucially, these investments are underpinned by long-term government-backed contracts such as CFDs or the Capacity Market, providing price certainty and inflation protection for the vast majority of volumes produced. We have continued to progress a number of high-quality options during the year, such as Berwick Bank and Corrie Glass, where discussions over a Cap and Floor mechanism continue with Ofgem. These are strong projects with robust industrial logic, and they will be required to meet decarbonization targets. We have been clear that we will only progress if we are convinced we have a solid remuneration contract with appropriate risk-adjusted returns. This is the practical manifestation of our value over volume ethos, which sets a high bar for equity return on investment, demanding high-quality growth. Disciplined investment will only pay dividends if it is matched by operational excellence, and the business has been focused on delivering its commercial potential.
Our hedging approach continues to maximize the value of our existing operational base, capturing prices above current price curves and de-risking future profit expectations. We have also taken action on controllable costs and efficiencies to reset the business for the growth ahead. Most importantly, we have maintained our focus on delivering high-quality investments such as Viking Onshore Wind Farm in Shetland, which underlined its position as the most productive onshore wind farm in the U.K. by achieving a 50% load factor in the last quarter of the financial year. I've already mentioned our significant battery portfolio under construction. It is well-sited and optimally sized to provide vital flexibility services and increased optionality and risk management qualities within our generation fleets.
As these premium projects have been delivered, we have been selectively adding others to the construction pipeline, such as Strathys South Onshore Wind Farm, which benefits from a long-term government-backed contract. Of course, Dogger Bank A is another landmark project for the group. Despite delays in the first half of the year, we have made strong progress over the winter months with turbine installation and commissioning work. Last month, the turbine installation campaign on this first phase passed the halfway mark with 55 of the 95 turbines installed as I stand here today. The progress we have made over the past few months is testimony to our project team and our supply partners who have worked in difficult conditions to keep things on track for completion in the second half of calendar year 2025.
Turning to Dogger Bank B, material progress has also been made, with all 95 foundations now installed, while inter-array cable laying work is expected to complete this summer. A second turbine installation vessel has been contracted, and we will expect it will commence installation work during Q2 2026. Finally, on Dogger Bank C, we have now commenced installation of foundations, with 17 monopiles now installed. Dogger Bank will be the world's largest offshore wind farm, and with an operational life in the region of 35 years, it will create real and lasting value for decades to come. There are risks associated with complex projects on this scale, but the high bar we set for equity returns, combined with the dedication of our delivery team, means we continue to expect all three phases to be comfortably in line with our hurdle rates.
In recent years, there has been a material shift in the role played by SSE Thermal within the group. The premium placed by the capacity mechanism on flexible thermal plants' ability to back up intermittent renewables has increased dramatically. In Ireland, we have seen prices at EUR 200 per kilowatt, with GBP 60 per kilowatt values in GB. SSE Thermal's assets have now secured contracts out to September 2029, and the capacity mechanism continues to offer sustainable earnings well beyond that too. Not only will the fleet provide valuable backup to the markets, but it will also offer strong risk management services to our other market-facing interests. This flexibility shores the group up against market volatility, protects against shortfalls in renewables output, and offers mitigation from wider commodity price uncertainties.
Over the medium term, our pipeline of low-carbon development options in hydrogen and carbon capture and storage remains hugely valuable, given the obvious need for additional flexible capacity towards the end of the decade. As with renewables, we will only progress investment if we are convinced we have a solid remuneration contract with strong economics in place and, in the case of flexible thermal, a clear pathway to decarbonisation. There is no better example of this than Tarbert Next Generation Power Station, where the expected capital investment has been de-risked by secured long-term government contracts and, when complete in 2027, will add 300 megawatts of low-carbon capacity to help an increasingly tight Irish market. SSE's various customer businesses have always provided valuable routes to market.
A strategic realignment of those businesses, notably with the integration of the former SSE Enterprise, now provides an enhanced role for energy customer solutions as a decarbonization partner of choice. We are providing around 1.1 million customers with around 17 terawatt-hours of electricity and energy services, whilst expanding PPA offerings, including round-the-clock green options for data centers. Tailored distributed energy solutions, including solar, battery, and private networks, are a growing area for us, enabling customers to reduce costs and carbon, and we are establishing strategic partnerships delivering a range of services from domestic solar installation to EV charging. We are advancing data-led solutions using AI to create powerful energy management systems. Regulated networks, market-facing renewables and flexibility, and highly commercial customer propositions—these are great businesses. They are well-funded, stacked with world-class assets, and run by highly talented teams.
I can't wait to get fully into my new role, working with Barry and the wider leadership team as we continue to shape their contribution to the clean energy transition. I'll now hand you back to Alastair.
Thank you, Martin. While these results reflect the resilience of SSE's business mix and the success of our strategy, investment evolution we have been talking about, and our sharpening focus on controllable costs and efficiencies, our responses to the complexities of the current operating environment. The platform we have built provides both strength and flexibility in this environment, while also maintaining SSE's ability to create meaningful value from the steady march to electrification, which, as Martin has pointed out, is unstoppable. It's been an immense privilege to be SSE's Chief Executive for the past 12 years.
It is a source of pride that with Martin, Barry, and Barry's predecessor, Gregor, I've seen SSE transformed in that time from a domestic utility company into a world-class infrastructure group, a clean energy champion building the energy system of the future. That future system needs more renewables, more networks, and more flexibility. It is worth stating that right now, no one is leaning into that reality more than SSE. We have new leadership that combines the best of all worlds: management stability and continuity, with fresh impetus for disciplined growth and the ability to adapt to a changing world under Martin. This is a sustainable company that will evolve under a team with a deep understanding of growing a business that is rooted in the society it serves.
SSE has the assets, the pipeline, the people, and the balance sheet strength to deliver not only its financial goals to 2027, but also to create lasting societal value and shareholder value over the remainder of this decade and beyond. Thank you. That ends our presentation today, and I'll now hand over to the operator for any questions you may have.
Thank you, sir. As a reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Thank you. We are now going to proceed with our first question.
The first questions come from the line of Mark Freshney from UBS. Please ask your question. Your line is opened.
Hello. Thank you for taking my question. Firstly, congratulations, Alastair, for your 23 years on the SSE board. All the best for the future. I was just looking at the things you've navigated through as CEO, which included Indie Ref, price caps, and what that led to: nationalisation risk, EPM loss, COVID, and an activist campaign, which you've managed to successfully navigate through. So well done and all the best. Before we get into the nitty-gritty, I just had two questions. Firstly, what is your biggest regret from the previous 12 years as CEO? Secondly, what would be your one piece of advice for Martin, not that he needs it?
Martin always needs a bit of advice, but he's pretty good, I do agree. Biggest regret?
I could have done a bit better, really, couldn't I? That would have been nice. Maybe a GBP 25 share price. And maybe, I suppose for me, just seeing some of the people fulfill more of the things they've done, it would have been nice to be here to see Dogger Bank finished. That will happen in the not too distant future now. It would have been great to see some of the big assets we've got as well: Corrie Glass, Berwick Bank, the next big offshore wind farm started and on their way. I think you're always going to have a lot of regrets, but there was an awful lot of positives, as you kindly pointed out.
Look, piece of advice to Martin: just basically be yourself and trust your instincts and make sure that you keep learning and evolving at the enormous pace you have done throughout the years that I've known you and had the pleasure of working with you on this board.
Thank you. We are now going to proceed with our next question. The questions come from the line of Rob Hilleen from Morgan Stanley. Please ask your question.
Hi, good morning, everyone. May I add my congratulations to Alastair after many years at the helm through lots of changing backdrops, as was mentioned, and also to Martin on his appointment. Great to hear those perspectives, Alastair.
If we could turn to guidance, obviously you've reiterated the range for FY2027, which has been there for a while, but obviously there's a big step change between what's implied for 2026 and 2027. Could you add a bit of texture around those building blocks and the confidence therein? Also, if I can add one nitty-gritty clarification, which I think is important for FY2026, is to what extent this GBP 100 million of recurring efficiency savings is in divisional guidance, or shall we say extra at the corporate level? Thank you very much.
Okay, thanks very much for that. Yeah, thanks, Rob. I'll take that. Look, the FY2026, the GBP 100 million, that is across the organization. That operational review affects all parts of the business. That cuts across.
Look, in terms of FY2027, yeah, the building block, obviously we're talking about there is FY2025, where you're seeing 90% of the earnings coming from the regulated networks and renewables business, so real quality there. As you step up, then you're looking at the capacity payments. We talk about GBP 150 million for capacity payments coming through, primarily in the thermal business. They're contracted payments, so very high quality earnings coming through there. You have extra six terawatt-hours coming through in renewables and principally in Dogger Bank. As we said, we've got quite a bit of good hedging done there at around two-thirds of that hedge, the merchant power hedge, at around GBP 75 a megawatt-hour.
Of course, there is the big step up in the RAV, the GBP 7 million step up in the RAV in the networks businesses, and you get your fast money and your return on that as well. We are starting from a very high-quality base and your very clear building blocks, Mark, or Rob, sorry, that give us confidence in that 175-200p.
Thanks very much, Alastair.
We are now going to proceed with our next question. The questions come from the line of Pavan Mahbubani from JPMorgan. Please ask your question.
Hi, team. Good morning. Thank you for the presentation and for taking my questions and echoing the others. Before I start, Alastair, I would just like to congratulate you on your nearly 30-year tenure at SSE and your 12 years as CEO, and wishing you well on your future endeavors.
My two questions are on the kind of how we should think about beyond FY27, looking at whether it's funding options or medium-term strategy. When do you think you'll be able to provide clarity on this? Is it possible that we can hear something post-draft determination, or is the expectation that you'd need to have the final determination and AR7 locked in before the market can have visibility on longer-term earnings and how those are going to be funded? That's my first question. My second question is a two-parter, just on an update on some of your offshore wind projects. Can you give us an update on Berwick Bank, where it's progressing, and if you have an updated timeline or when you can expect consent on that project? The part B to that question is your project in the Netherlands.
Can you remind us where we are on that project? When can we expect FID, and to what extent have you already committed or spent any investment into that project?
Thank you. Yeah, Pavan, thank you for your question. I'll maybe take the first one and roll forward the plan. Look, at this stage, we've just passed the three-year mark of a five-year plan. We have a huge amount of delivery to be getting on with in the next couple of years, and that's very much our focus. I think you'll have seen from Martin's slide earlier on in his script, there's a huge amount of policy and regulatory news to come out over the period ahead. Clearly, we need to get good visibility on that. I'm not going to speculate at this stage on the timing of any plan.
Clearly, Martin's outlined the various bits and pieces that will move around in the period ahead. At this stage, I wouldn't speculate.
Morning, Pavan, just on your offshore wind questions. The answer on Berwick Bank is we're still waiting for a final consent decision from the Scottish government. I mean, by definition, the longer it goes on, the nearer we get, I guess. We are still hopeful that we'll be able to bid that into AR7 should we get a positive decision, and we continue to work on that basis. For the Dutch projects, which you mentioned, two-gigawatt projects, 50-50 owned by us and APG. Clearly, the context for offshore wind has changed a little bit since we entered into that project. It was always a project that required us to match corporate PPAs with competitive CapEx.
We continue to work on the basis of trying to pull those two things together and are consulting with the Dutch government, given the slightly more difficult context for offshore wind at the moment.
Great, thank you.
We are now going to proceed with our next question. The questions come from the line of Deepa Venkateswaran from Bernstein. Please ask your question.
Thank you for taking my question. My hearty congratulations to both Alastair and Martin. My questions are as follows. Actually, I'll start with some focal questions for Barry. On your balance sheet, you'll be hitting around 4x net debt to EBITDA. Given the higher proportion of network earnings by 2027 and beyond, what is the natural level of gearing at that point, which would help you retain your rating? Is it 4.5?
Could you unpack a little bit about the statement that you made about retaining optionality while maximizing shareholder value? Could you elaborate a bit more on that? Those are the questions for Barry. I guess to Martin and Barry both, you've increased your hurdle rate on offshore winds to greater than 12% from 11% before, and I remember even that was an upgrade a few years later. Could you talk a bit more about what you're thinking behind raising the hurdle rate further, and how does this influence your approaching AR7 with Berwick Bank on the basis it's consented or it's allowed to participate without consent? Thank you.
Okay, look, I'll go first. Thank you, Deepa.
Look, on the balance sheet, what we've already said in this plan to 2027, we expect it to be within the 3.5-4 times net debt to EBITDA at the current ratings, but we already said we could go to around 4.5 times. Nothing really changes from that perspective. In terms of the optionality, I think a couple of things. One, I think we've always been clear we won't chase growth for the sake of growth. I think the message we gave today in CapEx hopefully demonstrates that. Look, we do have a number of options available to us. I listed some of them out today, but being clear that we rule nothing in or out. We will look at that in the fullness of time as we look to roll forward the plan.
Yeah, we will look to absolutely maximize shareholder value as we reflect on that. On the hurdle rates, we always said in offshore wind it was greater than 11%, and we certainly did not take any new investments at around that level. We are now reflecting the new world we are in, obviously the macro environment, obviously the risks we see around that sector as well. We have now upgraded that to greater than 12%. Again, we would always look at every project on its merits from that perspective. In the context, as you say, of AR7, probably just to reiterate what Barry said, we have always talked about capital discipline. We have always, on offshore, been very careful in terms of project contingencies and procurement contracting.
That is why Dogger Bank, even with a delay, we're very happy to say we expect all three phases to be above our hurdle rates. That risk management, if you like, has flowed through. That will continue for Berwick Bank, clearly the market situation is a bit difficult. That is reflected in the changing hurdle rate. It is more difficult for everybody. I think we've proved that we're good developers, good constructors of offshore wind, and we hope to take what we think is a competitive, well-sized project with good project experience forward. I think the other thing I'd just re-emphasize is there's a Clean Power 2030 plan out there which involves a lot of offshore wind build, and we can't see a scenario where Berwick Bank doesn't fit very neatly into that scenario and will only do it when the investment conditions are correct and the return is correct.
Thank you.
We will now proceed with our next question. The questions come from the line of Harry Wyburd from BNP Paribas Exane. Please ask your question.
Hi, morning everyone. Thank you. I will echo the congrats, Alistair and Martin. First question for Martin is a high-level one. I noted that you can't commit on when you would do a CMD or a strategy update, but when that ultimately comes, Martin, what do you think are the main areas to focus on to see the share price reflect the value in the plan that you've put in front of us and just updated today? I mean, I think most of us would agree that there aren't many companies with a 25% RAV CAGR that trade at multiples that you do today.
What do you think needs to be better understood by the market, and what are the areas that you're going to focus on when you do come to market with your next update? The second one is a financial one on rates. U.K. long rates with 30-year rates have gone from being amongst the lowest in Europe to by far the highest. From my perception, you're sort of trapped between these very high rates, which are pushing up the levelised cost of renewables. Martin, as you alluded to, a kind of fraying of public attitudes or political attitudes towards net zero. How aware are government that these higher rates are pushing up costs? Is it time that if we're spending money on GB Energy, there's a question in government about whether there could be some financing support for you?
Because obviously, if your 30-year financing or your long-term financing costs are a lot lower, then you'd be able to bid a lot lower in the CFD auction round. Just wondered if you had any views on that, given just how high your long-term rates in the U.K. have got and how much higher they are than in continental Europe. Thank you.
Go first and then let Barry do the rest.
Yeah, sorry, morning. Yeah, look, just on your first question, I mean, I think we've already been pretty clear. There's a bunch of big events and news flow which will happen over the next few months. Draft determination is clearly very important. Government decision on zonal pricing, which we've spoken about at length already this morning. Of course, the AR7 and how that works through.
Those are the big things that we are looking to go through over the summer. I mean, just generally on strategy, just a few observations and maybe pulling out a few remarks that we have already made, but re-emphasizing them. On the strategy we have got, we are positioning ourselves as the clean energy champion of the U.K. and Ireland, stand firmly behind that. Our ability to pivot between networks, renewables, and flexibility is obviously very important and has served us very well. Right now, we are in a very good period for networks growth, which we are, as you say, very happy to take that opportunity to build that out on behalf of the market.
Alastair made an interesting remark at the start of the presentation, which is that Barry and I have been with him every step of the way as we set the strategy that we are now engaged in over this period. Of course, strategies change as the markets evolve, but very firmly, we are fixed on delivering and executing that plan and beyond.
Yeah, look, Harry, on the rates, yeah, rates are high, but for us, as we bid into an auction for a CFD or we take FID in a project, we would always have to feed that latest view on rates in from that perspective. That is always part of our disciplined approach. I have no doubt others see that as well, and I have no doubt the government sees that too. Maybe that is along with supply chain and various other pieces.
I'm sure that's part of the reason why we've seen a slightly slower build-out of offshore wind that maybe had been anticipated a few years ago when rates are lower. That all has to be factored in, and no doubt government will reflect on that along with other pieces while they set the parameters for AR7.
Okay, thank you very much.
We are now going to proceed with our next question. The questions come from the line of Dominic Nash from Barclays. Please ask your question.
Good morning. I'd just like to echo the remarks from some earlier people on. Congratulations to both Martin and Alastair for your path CEO and your next CEO. A couple of questions for me, please. Firstly, something that piqued my interest was your statement, I think Martin saying that you saw the net zero agenda sort of fraying at the edges.
When you look at the sort of energy trilemma, affordability, security of supply, and decarbonization, I mean, Clean Power 2030 and all your spatial programs seem to be focusing more on the decarbonization angle, and you call yourself a clean energy champion. The recent report coming out that the U.K. has got the highest power prices, I think, in Europe and the highest power prices in the world are clearly something of concern. What could you propose to make the U.K. power prices lower? In that, sort of like the carbon price linkage or zonal power pricing or the detailed marginal model, etc., etc. Leading onto that, one thing that clearly, the second question, which is on investment, you clearly cut that by GBP 2.5 billion, which seems quite a lot in just two years by now.
You then say that you need at least 10% RORI in your networks. You've got discretionary spend in your renewables. I get it. If Ofgem and the CMA say that the returns that you will get are not going to meet your hurdle rate, what physically can you do about it? Thank you.
Okay, I'll take the clean power question first. I mean, the first point to make is we think there's very good consensus around Clean Power 2030. It's obviously there's a bit more discussion about the cost of that, and that's been clear over the last 6-12 months. Remember, in the U.K., we do have a Clean Power 2030 plan. We have a government with very strong ambition to make sure it does decarbonise its energy system.
It is notable how supportive senior ministers, Prime Minister, and Chancellor have been on that plan consistently for many years. We still see plenty of opportunity against that higher level policy. In terms of the cost, I mean, I thought one of the most interesting parts of the NISO Clean Power 2030 plan was its comments in there that the cost of building out low regret options like increased renewables and increased network was no different really to the cost of not doing it, to the counterfactual, is the way they put it. That would be our line to government, that if you continue to build out renewables, you get a lower energy price system.
If you get more transmission onto the system, you get better proliferation of renewables into that merit order and start displacing more expensive gas, and you get a more affordable system, which is cleaner, has energy independence, and is less exposed to the shocks that international commodity markets can offer sometimes. That has consistently been our message to government and would be the same today.
Okay, I'll just touch on your other question. Yeah, we've been very clear that to be internationally competitive, then regulator government need to get up around that 10% nominal return for transmission assets. I think the big thing for them is that the electricity industry is in a good place, and you can compare and contrast that with the water industry, which is in a less good place at the moment. I think unfortunately lurches from one crisis to another.
We've got the opportunity now to see lower consumer prices coming through. Sort of Cornwall and others are predicting GBP 120 in the summer. I think we see clear forecasts that prices can go lower again further out in this decade. One of the key parts to that is delivering the energy system of the future. Delivering that energy system, the absolute fundamental for that is the networks. If we do end up going to the CMA and having a debate about that, I think that really does put the Clean Power 2030 plan at risk. We know and we've seen many people comment, if you build the energy system of 2030 or if you had that energy system from 2030 available back in 2022, consumers in this country would have saved GBP 30 billion off their gas bills. We're seeing lower prices coming.
We think that can go further. We know that the way in order to make sure that those prices do not go back up again is to build the energy system that we want, that we are in control of. On the back of that, we get growth and jobs as well in the U.K. That is a clear tenet of where we are. I think that we have worked well and comfortably with our regulator in recent years to scope out projects. We now need to make sure that the returns are right so that investment will flow and we can deliver all of those benefits to the consumers in this country.
Thank you.
We are now going to proceed with our next question. The questions come from the line of Peter Bisztyga from Bank of America. Please ask your question.
Yeah, good morning.
Can I also add my best wishes to Alastair and congratulations to Martin. I have two questions, please. One on the GBP 3 billion CapEx part. Can you be a little bit more specific about what sort of projects have been dropped in that particular technology region? To what extent were these expected to contribute to your March 2027 earnings? Staying on that topic, you're still targeting leverage at four times by that date. I'm just sort of wondering why there does seem to be a little bit more headroom given a fairly sizable CapEx cut. That's my first question. Then just on your RIIO-T3 business plan and this GBP 9 billion of uncertainty expenditure, can you give us a sense of when we might actually get visibility on this and what sort of savings we could expect in RIIO-T3?
Could it be back-ended towards 2030? Could it come sooner? Is that also, I mean, you said your transmission plans would not be affected by renewal pricing. Does that kind of apply to this GBP 9 billion as well? Thank you.
Yeah, okay, I'll take the first few financing ones, Peter. The GBP 3 billion, so that roughly splits about GBP 1.5 billion in renewables, which predominantly will be a slowdown of the pipeline coming through in southern Europe. That will be a big piece of that. Obviously, some of the big projects like Berwick Bank, Corrie Glass, Arklow are going a bit slower than originally envisaged a couple of years ago as well. That is more phasing of that CapEx moving out to the right with that.
Just about GBP 1 billion then between the flexible thermal business and the old legacy enterprise business, things like carbon capture, storage, hydrogen, etc., also moving slower as well. And there's about GBP 500 million in networks, primarily delaying consent, particularly on the Skye project. In terms of the impact on FY2027 earnings, look, a lot of them renewables projects were more back-ended into the plan anyway. But look, there's always, as with any plan, when you look out a couple of years, there's always some moving parts and ups and downs in that. But absolutely doesn't impact our confidence at all in the 175-200p in that year and the high quality of earnings that underpin that. And I think then the last question you had was on the leverage being at around four times. And again, look, it's not a straight read across GBP 3 billion nest heads.
It should bring that down. Again, as I said, there's moving parts within that. If you look at something even like networks where tax is effectively a pass-through, you pay the tax, you get the revenue, and it's EPS neutral. Obviously, when the full expensing comes in, you're not paying the tax, but you don't get the revenue coming through your EBITDA either. Look, there's a number of moving parts in that. We're very comfortable at around that four times in 2027. As I said, plenty of headroom as well.
Peter, sorry, just on your question about transmission, what I got, but there was slightly poor sound quality, so my apologies, was that you were interested in what might crystallize the GBP 9 billion of uncertainty or less certain CapEx over that period of time. Were there any other angles to that?
Because you were a bit muffled at one point.
Yeah, that was the question. And obviously, just to add to that question, whether zonal pricing would impact that GBP 9 billion one way or another.
Okay, firstly, I mean, obviously we've got the big ASTE LOTTE projects to deliver. We've updated on progress there. For beyond 2030, effectively, we've submitted a plan and started working on that with Ofgem. That is, as you say, up to the GBP 9 billion. That is designed and scoped on more renewables coming through in Scotland. Of course, the progress of Scottish offshore will be important to that as we go forward. We're waiting on the time of delivery for some of those things and obviously in consultations.
In terms of the zonal pricing question, I think we've been pretty clear about zonal pricing that we don't think it's in the consumer or market interest. We've also been pretty clear that if zonal pricing did come in, we think the impacts and distributional impacts of that might be very uncertain and create a bit of complexity in the market, which would be quite difficult for people to unpick. That is one of the big reasons as the U.K. goes into a big clean power acceleration, we think is a very bad idea to introduce it. It's quite difficult now to kind of speculate on the potential effects of something that is only being debated about and has yet to happen. Tricky to answer that.
Yeah, I think Equinor, I'd just add on that last piece, Peter, that essentially I think our transmission business is the most advanced in terms of its plans and its ability to attract supply chain. I think equally, Scotland has a lot of opportunities to put a lot more renewables in place and ultimately deliver the energy system that people want. Exactly as Martin said, there's a zonal decision and then all the different caveats, carve-outs, changes, and everything else to that. I think it's very difficult to ascertain exactly what the effect of that is. It may be that it would ultimately delay some decisions around investments. It will certainly increase costs, I think, of those investments substantially.
It may even delay some of them, given that it will take beyond the end of this decade before we understand exactly what zonal is and it can be implemented.
Thanks. Sorry, actually, one of my questions was, have you got a sense of the phasing of that GBP 9 billion, whether it is kind of spread equally across RIIO-T3 or is it going to be more back-end loaded if it comes through?
I think if it comes through, it will be more back-end loaded. It will be related to spend like on Shetland 2, which is a project that was used to underpin the Sumitomo Cable Factory in the north of Scotland. It will be more back-end loaded. Obviously, as we go forward, as time elapses, I think we will get more visibility on that.
By the time we certainly reach final determination at the end of this year, I think we will definitely have a clearer idea on some of the early parts of those 9 billion projects.
Very helpful. Thanks very much.
We are now going to proceed with our next question. The questions come from the line of James Brand from Deutsche Bank. Please ask your question. Your line is opened.
Hi, good morning. Also, again, congrats to me for Alastair Martin. I have three questions. The first was on zonal. You kind of touched upon this a little bit. I was wondering whether you had or were able to give us some quantification of the kind of proportion of constraints that will be alleviated by the new transmission lines that you're building.
As I understand it, there are some kind of constraints getting power from Scotland to England as much as half the time at the moment. Will the new lines alleviate most of those constraints or just some of them? That's the first question. Second is on leverage. You said that you'd obviously be at four times in 2026-2027, but you described that as being well within strong investment grade. So the question is, where are the kind of boundaries of leverage that you would be happy with at the moment? What's not well within, but kind of getting towards the edge of what you would see as strong investment grade? Just so we can just help us think about the balance sheet over the coming years. Thirdly, on the transmission side, any lessons that should be learned from what happened in Spain for the U.K.? Thank you.
Yeah, look, I'm not going to touch on zonal, but Martin can definitely pick up any more on zonal. Just on those new lines, I know originally when we looked at our first big project, which is EGL2, Eastern Green Link 2, people were estimating constraint costs avoided per annum of GBP 500 million, if not more. Therefore, these lines are important. We definitely think the four major projects we're building, and there are a couple that Scottish Power and National Grid would be building as well. I don't see constraint costs being materially above where they have been historically. I would note, just because I think this sometimes gets confused in this debate, there have been system balancing costs for decades, many, many decades paid to coal plant, gas plant, nuclear plant, all sorts of plants out there.
It is not just a function of renewables or putting more generation in Scotland. There is no doubt that a lot of the issues related to zonal will be dealt with by the current investment program that has been approved by the regulator. Barry, do you want to deal with?
Yeah, absolutely. Thanks, James. Look, we are currently AAA plus, BAA1, stable outlook. The internal metric we look at is, we said, three and a half to four times net debt to EBITDA over the plan, but that we could get into four and a half times at that same kind of strong investment grade credit rating. We have a big capital investment program ahead of us. It is very important to us that we retain our strong investment grade credit rating. We are quite comfortable where we are there.
As we said earlier on in previous questions, we have plenty of optionality around the funding.
Maybe just to kind of close off that answer on constraints, I mean, obviously, systems get configured differently every half hour of every day. It is probably a better question to put to National Grid rather than us because they will be aware of things that we will not be aware of. Obviously, alongside transmission, we are also arguing for flexibility very strongly. Particularly, we think pumped storage has a massive role to play in helping move system balances around and helping the grid operator with wind variability and wind intermittency going forward. Just note that. In terms of Spain, Spain is obviously a very different market to GB with a very different merit order construct, a very different mix of generation.
It is very hard to draw lessons, which I do not think Spain have concluded yet for a GB system. I would point out, though, that U.K. policy has been very good in terms of capacity mechanisms and making sure it has enough system flexibility at a national level. The system operator has a very good record in terms of balancing localized dynamics, which will be very important as well going forward. Because of the array of flexible technologies us and others can offer to U.K. policymakers in the U.K. markets, I would be confident that there are ways of balancing systems going forward.
Great. Thank you very much.
We are now going to proceed with our next question. The questions come from the line of Charles Swabey from HSBC. Please ask your question.
Hi, good morning, then.
Thank you for taking my questions and adding my congratulations to both Alastair and Martin. I have two questions. One is first on the Corrie Glass project that you intend to submit into the Cap and Floor auction later this year. We've seen some eligible projects opt out of the first auction due to perceived poor risk return frameworks. Wondering if we could get your perspective on market design and the risk requirements for you to take that project forward is my first question. The second one would be that the GBP 1 billion cut to thermal investments, you gave a little color on where those areas have been, but I wonder if you could give us a sense if any of the impact on earnings you see post 2027 from this reduction in investments. Thank you.
Okay, I'll take the Corrie Glass question.
I mean, you'll be aware that we've been working on Corrie Glass for a number of years. That is because we have always been very consistent in our view that it has incredibly robust industrial logic, offering fantastic flexibility to a system that will need it, always referring to my last answer. We remain confident in Corrie Glass's prospects. In terms of the Cap and Floor auction round, we haven't withdrawn from that, but we have been very clear that we will only proceed with Corrie Glass if our returns are commensurate with the construction risk and also the risk profile of that sort of asset. We're pleased that Ofgem are continuing to consult with the industry on that, so we'll continue to engage on that basis.
Yeah, hi Charles.
Look, on the earnings, look, clearly we have not given any earnings guidance past 2027, so we are not going to get drawn into that now. What I would say is we have got about over 6 gigawatts of flexible capacity already in the system, and clearly we have invested in that. That is highly reliable. If there is a slowdown in new capacity coming on the system, clearly that makes the existing capacity even more valuable. Yeah, I think I would leave it at that.
As a final reminder to ask a question, please press star one and one on your telephone and wait for your name to be announced. To withdraw your question, please press star one and one again. Once again, it is star one and one for any question. Thank you. We are now going to proceed with our next question.
The questions come from the line of Ahmed Farman from Jefferies. Please ask your question.
Hi, firstly again, congratulations from my side to Martin and Alastair as well. I have a few questions. Actually, I want to start with Martin, your comment about the U.K. and European carbon prices. I wonder if you could help us frame for us sort of the timing of that and how that could be an opportunity for SSE. I mean, is this something we can then sort of expect to be a tailwind for merchant businesses and even potentially leading to some revision of your sort of power price assumptions behind the plan? That is my first question. Zonal pricing, I think your message is very clear.
I just wanted to ask if you could elaborate a little bit on the grandfathering arrangements or potential grandfathering arrangements if this was to sort of come through. What is the debate there? Could this be around sort of existing CFD assets on volume or pricing, or could the scope be? Is there any sort of discussion that the scope could be broader? A final one for Barry. Barry, you talked about, and I appreciate a number of moving parts that would feed into the future plan. You described the optionality around the balance sheet as a non-exhaustive list.
I just want to ask you if there's a sort of a broader message here that there's a number of options that you have, a number of levers you can pull before you think about new equity capital in the business to fund future growth, if that's the overall message of slide 16. Thank you.
Okay, firstly on carbon prices, just a reminder. I mean, we have, I think, over the last three results presentations consistently argued for and advocated for a coupling of carbon prices between the U.K. and Europe. I mean, we have given a sense or a view that we think over time that will be inevitable. Part of the reason for that is without consistent carbon prices both sides of the English Channel, you end up in slightly odd interconnected flows.
That has been a strong kind of assumption of ours for a while. Of course, higher carbon prices are better for merchant renewables and supportive of wholesale power prices going forward, which also allows renewable developers to work that into their thinking. Given we have consistently said we believe that was a working assumption, I think you probably kind of maybe take that in and around. On zonal, the slide we showed assumed grandfathering of CFDs. There is obviously wide debate about zonal pricing, and it has been for many years, actually. If zonal pricing did come in, what would the industry need? We have just taken that assumption in the slide to make sure that shareholders and investors understand that we have very strong flexibility in our group.
Therefore, when we talk so strongly against zonal pricing, it's not necessarily a concern for our portfolio, but more of a concern for general market sanity and interest. Barry.
Yeah, look, on the balance sheet, and what were the key messages? I think the key messages, Ahmed, were very much, we're not chasing growth for the sake of growth. I think we've shown that today. We've listed out a number of options we have at our disposal. And we've spoken about these many times, whether it's hybrid. We've even talked about a potential option on a steel stake in distribution, which a number of years ago, we talked about actually doing that, but then other parts of our business did extremely well. We actually didn't need to do that in the end. Again, that option remains there. Look, we haven't rolled forward the plan.
We have not got into the nitty-gritty of that yet. Really what we are saying is we have options, but we are ruling nothing in or out until we actually get into the nitty-gritty of rolling that plan forward. Whatever we do will be very much focused on creating maximum value for shareholders.
Okay, thank you.
We are now going to proceed with our next question. The questions come from the line of Jenny Ping from CT. Please ask your question.
Hi, thank you very much for the opportunity and did hope on the congrats. A couple of questions, please. Firstly, just going back to an earlier question with regards to the GBP 3 billion CapEx cut, can I just confirm looking at your previous NZAC plan, you talked about GBP 15 billion of operational cash flows over the period of 2024 to 2027.
Can I just confirm that still stands to get to your 4 times net debt EBITDA? That is the first question. Secondly, with regards to the Southern European asset impairment, can you just talk a bit more for the basis of the write-down? Is it just a matter of consent, or is it the economics looking poorer? I presume the write-down is what, 2 pence boost to EPS onto sort of the forward-looking years. Linking to that, a strategy-related question. I presume this kind of marks a slowdown of your international strategy aspirations, and we have not really seen much development in way of progress in Japan either.
Does this mean that you're really sort of taking a step back on your international strategy with the focus now being on the U.K. and Ireland solely, or are we expecting further sort of international growth, especially in the context of what you've said earlier on the Netherlands projects as well? Thank you.
Maybe I'll start, Jenny, morning. Firstly, I'll deal with the last question first, if I may. We've always been very, very clear that we are focused on our U.K. and Irish project pipeline, the opportunities here where the significant majority of all our projects and all of our plans are based. That has been consistent, and we'll just reiterate that for now. In terms of the issue you talk about in Spain in particular, we've obviously secured a platform there that has gone slower than we expected, partly planning, partly consenting, and partly grid connection.
I don't think there's anything unusual for us in that. I think the industry there has struggled similarly. We still have a pipeline there. We still have development potential and prospects there. We'll continue to focus on that. We would note that Spanish policy ambition still remains extremely high for renewables and for onshore wind over the period. We are hopeful of getting that away, but our focus is absolutely on our U.K. and Irish interests.
Yeah, look, Jenny, on the sources and uses question, yeah, look, with this GBP 3 billion less, clearly a CapEx, but there's a lot of moving pieces in the sources and uses as you're looking at a couple of years. Obviously, debt will come down, obviously, with less CapEx, but there's a number of moving pieces also in the cash flows as well.
I would not say it is a straight just GBP 3 billion off the debt. I think there are a number of moving parts within that, but overall, still very confident in the net debt EBITDA being around four times when we get out to 2027. On the impairments in Southern Europe, obviously, you are right. It reflects the sector-wide delays affecting consenting and grid connections out there. That impairment was primarily a couple of projects we had allocated some value to. Those projects are not going to go ahead at this time, but the bulk of it would have been towards goodwill we were carrying on the acquisition. I do not see any EPS benefit really coming through there. We still continue to expect to build out that platform, but it will come later.
Thank you very much.
We are now going to proceed with our next question.
The questions come from the line of Mark Freshney from UBS. Please ask your question.
Hey, hello. Me again, just further to the zonal question. I mean, the government have been clear it is between reformed national pricing and zonal. I know that from the past, when Ofgem looked at it a decade or more ago, transmission charges, that is. There have been a few things on transmission charges which SSE have felt worked against them. On reformed national pricing, I mean, surely there would be a great amount of uncertainty regarding what transmission pricing would be, right? I am just wondering whether we get over zonal and if the government do stop it, whether actually the alternative could be almost as negative for the system.
Okay, look, I will tell you. I mean, clearly, any market redesign is going to have a level of complexity.
In fairness to the government, I think in the zonal debate, they have recognized that, which is why they have taken their time consulting very widely. I would point you back, Mark, to the strength of our portfolio, though. We have very strong flexibility in key zones. We are able to adjust the portfolio to respond to any market conditions that pertain. I think we have proved that time and time again. We were very clear in our opening remarks that any market development or any market redesign that we would imagine, we would be confident about the portfolio's ability to function very well in that and mitigate any risks. Of course, any sort of market reform requires careful thought. You would expect us to say this, but we will be helpful, collaborative, constructive in dialogue with governments about any ideas for that going forward.
Thank you.
We are now going to take the next question. It is from the line of Rob Helen from Morgan Stanley. Please ask your question.
Hey, thanks. Just one quick follow-up. Yeah, we have sort of danced around this issue from other angles. Of course, as we talk about Berwick Bank and the AR7 bidding process, we are due some update on the framework over, hopefully, the early summer. I wondered what you were expecting from that as it pertains to protections from potential zonal risk, maybe longer CFD terms or anything else if you could add some color. Thank you.
Yeah, as you say, Rob, I mean, that has been under discussion also for a period of time. Maybe best to give your position on it. We think longer CFDs are a good idea, particularly given the current context developers face.
We would be supportive of government policy there. One thing to note is there is consideration about allowing developers to bid if they haven't got a valid consent. We don't think that's a good idea. We'd point government to various markets, including Ireland, where people have taken projects through CFDs on the basis of that and then not delivered them because the consenting issue has been a problem or there's been other economic issues. We think that's probably a bad idea. In terms of kind of other considerations, again, we've been engaged with government and continue to discuss alongside the industry what is the best framing for AR7. Clearly, AR7 and AR8 are very important rounds, though.
If the government is going to attain its Clean Power 2030 plan and Berwick Bank has a 4.1 gigawatt three-phase option to go into those rounds, assuming it does get a valid consent, would be a very important part of that jigsaw.
Thank you.
We have no further questions at this time. I will now hand back to you for closing remarks. Thank you.
Okay, great. Moderator, thank you. Thank you for all the questions as well. That ends our presentation today. Finally, I'd just like to say it's been a pleasure to present such a strong set of results as I prepare to hand over to Martin. I leave SSE in safe hands, and we look forward to speaking to many of you in person as part of our roadshows in the coming weeks. Thank you, and have a great day.