Good morning, everyone, and thank you for joining us today as we set out our transformational, fully funded investment plan to deliver high-quality capital and earnings growth. As I give my first presentation as Chief Executive, I am delighted to say that before us lies the most exciting period of growth I have seen in my near three decades at SSE. By leaning into the U.K. network's opportunity, we are underlining our position as a top-tier European energy player. Over the course of the next 30 minutes, we will outline how we have been ramping up delivery of game-changing infrastructure, provide a brief update on our financial performance, and finally, lay out the detail behind a bold new plan that faces into the paradigm shift underway in our sector.
Before I hand over to our Chief Financial Officer, Barry O'Regan, to run through our results for the half-year, I want to briefly set the context for how our integrated strategy optimizes growth and creates long-term sustainable value. SSE's position at the heart of the energy transition in our core U.K. and Ireland markets has created a once-in-a-generation opportunity for the group to significantly increase our investments in homegrown, secure, and clean energy infrastructure. We have great options across networks, renewables, and flexibility, but within that, the single biggest opportunity is in transmission, and that's our focus this morning. Under this plan, we will be investing GBP 33 billion, of which 80% will be in networks, growing the regulatory asset base by a compound annual growth rate of around 25% to 2030, and positioning SSE as one of the fastest-growing electricity network companies in the world.
This will drive increasing levels of high-quality index-linked earnings with clear visibility to achieve between GBP 2.25-2.50 earnings per share by 2030, after adjusting for the equity placing we have announced today. We are also able to extend our sustainable and progressive dividend policy over the same period. It is important to emphasize that this is a fully funded plan with a firm commitment to maintaining a strong balance sheet. Around 90% of this will be self-funded through strong operational cash flows or by steady increases in our levels of net debt and hybrid capital. The remaining 10% will be achieved through a combination of today's equity placing as well as targeted disposals. This is a hugely exciting investment plan which will deliver significant long-term value creation over the course of this decade and beyond. Our confidence is underpinned by SSE's track record of delivery.
The roll call of SSE-built additions to the energy system in recent years is impressive and includes the delivery of complex projects like the Shetland HVDC connection, Viking Wind Farm, Seagreen, the Northeast 400 kV scheme, Slough Multifuel, and Keadby 2. The relentless delivery continues with the headway we have made on construction and planning milestones over the past six months. In networks, construction is now well underway on four of the 11 major transmission projects, with all major consents submitted and supply chains secured for the remainder. In renewables, we are making strong progress on our 2.5 GW construction program, including Dogger Bank, where 88 out of 95 turbines are now installed, with the projects remaining on track with the guidance we issued over a year ago. In addition, Yellow River is fully commissioned, and Berwick Bank is consented and on track for participation in upcoming auction rounds.
Flexibility completes the picture as we progress construction on two vital new thermal generation projects in Ireland. As we will set out today, networks are the growing core of our investment plans, but they continue to be complemented by selective and disciplined growth projects across our other businesses. Of course, it is critical that in making this progress, we put our people first. Everything we will talk about today is underpinned by the hard work and dedication of our employees and contract partners, so keeping them safe and well will always be SSE's primary concern. It is therefore pleasing to report continued strength in our safety performance through a period of increased construction activity over the past six months. With investment set to accelerate, it will be critical to maintain our focus on looking after those who work for and on behalf of SSE.
I'll now hand over to Barry for an overview of performance in the first half of the year before we turn to our exciting plans for the next five-year period.
Thank you, Martin, and good morning, everyone. I'm sure you'll be keen to see further detail of our new investment plan. However, it is important to briefly cover financial performance in the first half and our reaffirmed outlook. The GBP 655 million adjusted operating profit delivered by the group over the past six months was in line with usual seasonal averages and therefore keeps us on track to deliver on our full-year expectations. The first half saw a step change in transmission investment and earnings, so it's worth pausing to highlight the continued evolution of the latter.
Around two-thirds of earnings were generated by regulated networks, an increase relative to the comparative period and in line with the continued upweighting of investment in that area. The increase in high-quality regulated earnings is a trend that is set to continue as we deliver on our investment program. Turning to the bottom line, the group delivered adjusted EPS of GBP 36.10, in line with our expectations for the period. In our combined networks businesses, adjusted operating profit fell by GBP 84 million over the first six months. Profits almost doubled for transmission, driven by the continued increase in investment as we make substantial progress on our large capital projects. Turning to distribution, profits were lower, as expected, given the non-recurring inflation adjustment in the prior period, with operational performance remaining strong.
Overall, we continue to be pleased with the underlying financial and strategic performance achieved by our regulated businesses, which sets them up well for their future growth. In SSE Renewables, strong progress continues to be made on Dogger Bank construction, and we were delighted to announce full completion of Yellow River in October. Whilst increased capacity largely offset unfavorable weather conditions, the 20% decrease in hedge prices that we flagged in May meant that adjusted operating profits have reduced this period. With the usual seasonality meaning that over two-thirds of operating profit for this business is generated in the second half of the year, we remain confident that earnings will be higher on a year-on-year basis. Turning to flexibility, adjusted operating profits have fallen since the previous period.
This movement was mainly due to the customer's business, where a bad debt release in the comparative period is combined with lower volumes in the first half. We expect a greater proportion of profits to be recognized in the second half for this business. Below the line, net finance charges were stable, reflecting a combination of capitalization effects and use of hybrid debt, with coupons expected to increase in FY2027. Our tax rate continues to decline, with the full expensing capital allowances available on our increasing investment program. As you know, our dividend policy is to deliver 5%-10% growth across the year, and as set out in May, our planned approach means that we today declare an interim dividend of GBP 21.40, being one-third of our FY2025 dividend.
Turning now to the financial outlook for FY2026 and FY2027, we are pleased to reconfirm the detailed segmental guidance we gave in May. With half-year results within the normal ranges of seasonality, we see the strong performance noted today continuing through the key winter months, subject to the usual variables around weather, market conditions, and plant availability. Consistent with the approach in prior years, we will provide specific EPS guidance later in the financial year. Looking further ahead, the strategic execution that Martin highlighted earlier means we remain confident in delivering against our FY2027 earnings projection. With the first half financial performance now covered, I'll pass you back to Martin for more detail on our transformational investment plans.
Thank you, Barry. It's important to set the scene for why a huge acceleration of investment in infrastructure will be needed in any realistic energy transition scenario. Regardless of shifting political priorities, electrification of the global economy is unstoppable and accelerating. As you can see from the slide, there is a dramatic ramping up of electricity demand from 2030 out to 2050. That is a staggering amount of growth for the system to accommodate, particularly against a backdrop of an aging gas generation fleet, nuclear closures, and the reliance on imports from jurisdictions going through similar uncertain transitions. It is also worth emphasizing that the surge in energy demand is unlikely to be smooth or linear. We will need a system that can accommodate uncertainty. These projections have a number of important implications.
First, the need for a much more strategic, centralized approach to system planning to ensure the right infrastructure is built in the right places at the right time. We are seeing this materialize through the Clean Power Plan, the development of the Strategic Spatial Energy Plan, which will follow, and ambitious planning reform. Second, it requires a clear focus on the cost of capital and crowding investment in electricity infrastructure because this is what will deliver in the long-term interests of customers. This was a key factor in the government's welcome decision to rule out zonal pricing in the summer and remains the driving force behind policy and regulatory decisions that are adding momentum to our strategy for value-enhancing growth.
Meeting the needs of an electrifying economy requires four things: rapid expansion and reinforcement of the transmission network, strategic local distribution upgrades and modernization, a doubling or even tripling of homegrown energy generation supply, and a greater focus on storage and flexibility to keep it all in balance. All of these drivers underline the multi-decade organic growth opportunity in front of SSE's carefully selected business mix. The need to alleviate system constraints and rewire Scotland underpins the huge projects transmission has well underway. This is investment that the grid needs today, and it will lay the foundation for development of smart grids and a digital economy in the future. In distribution, the next price control will mark a shift in pace as we deliver increasingly strategic plans that accelerate electrification for consumers.
Across renewables, which remain the cheapest form of new generation, we have a premium pipeline of options and significant delivery expertise. The North Sea leads the world in offshore wind, and the capability we have developed through projects like Dogger Bank and Seagreen gives us an enviable platform for future growth. Our flexibility capabilities give us resilience against unexpected market developments in an increasingly electrified world. Thermal plants will be rewarded in all transition scenarios, whether providing grid stability or security of supply, and it is complemented by a customer's business that is meeting the demands of a digitalized world focused on AI and data center growth. With supportive policy frameworks and the expertise to deliver, SSE has unique access to the multi-decade organic growth opportunity in these core markets.
We briefly touched upon some of these numbers in an earlier slide, but it is worth walking through what this once-in-a-generation opportunity means. The GBP 33 billion investment plan presented today is a tripling of the investment we delivered across the previous five years. This investment brings with it industry-leading capital growth, with our combined networks RAV set to grow to around GBP 40 billion by the end of the decade, a 25% compound annual growth rate. Disciplined further investment in renewables is likely to add a further 1.5 GW of projects, combining with the 2.5 GW already under construction to take installed capacity to around 9 GW by 2030. This is growth that will create significant value for the group across the life of the plan and the longer term. It will underpin an increase in adjusted EPS to between GBP 2.25 and GBP 2.50 by FY30, after accounting for today's proposed placing.
When compared to last year's FY25 EPS base, which remains unchanged at GBP 1.609, this is a compound annual growth rate of between 7%-9%. This accelerated investment is underpinned by secure U.K. government regulatory frameworks, and it will unlock growth across the wider economy and support thousands of jobs over the course of the plan. Turning to transmission, Ofgem's strategic approach to regulation has provided unprecedented and welcome visibility on investment to 2030. While we continue to engage constructively with Ofgem ahead of the final determination on RIIO-T3 next month, the vast majority of the transformational CapEx plan we announced today has its origin in the ASTI and LOTI programs. Between the agreed ASTI and LOTI regimes and business-as-usual programs, we see SSE and transmission investment increasing to around GBP 22 billion across the period, net of the share from our supportive investment partner.
This will deliver a 30% CAGR in the transmission asset base, making it one of the fastest-growing electricity networks in the world, with earnings increasing at an even faster rate over the plan. As I will come on to over the next few slides, with the high degree of visibility we have over the CapEx plan and with all major consents submitted, we are making sure that the business and the supply chain are well positioned to deliver. The ASTI and LOTI projects are required in every realistic energy scenario. They are well advanced, with mature designs, optimized configurations, and a supply chain ready to deliver. Around 90% of our investment in transmission will be spent on these projects and business-as-usual investments, and it reflects the supply chain inflation we have seen over the past few years.
These projects will connect homegrown renewable energy and transport the power produced to areas of increasing demand across the country. They offer clear value for money for consumers by reducing current constraint costs, establishing a foundation for security of supply, and reducing our national dependence on volatile energy markets. This high degree of visibility means that the transmission story today is all about safely and efficiently converting the lines on this map into critical national infrastructure, and this is happening at pace. As I said earlier, four of the 11 ASTI and LOTI projects are already in construction, and all major consent applications have been submitted. All supply chain frameworks that we need have been secured, and we are working with our partners on their delivery capacity and manufacturing quality. This is not a desktop exercise. This is securing key equipment. This is inspection of manufacturing facilities.
This is accelerated innovation and support of the supply chain. It is heavy recruitment ahead of need, vast training programs, and deep community engagement, and this is all well underway. With our own resource in the transmission business increasing fivefold in the past five years, we are putting everything in place to deliver most of these projects by 2030 ahead of the next phase of projects that will surely follow. This is an exciting moment for SSE, for Scotland, and for the U.K., but we are acutely aware the local communities have a major stake in these projects. Having conducted what we believe to be the largest public consultation exercise Scotland has ever seen, we continue to engage with all parties and adapt our plans where we can. We are also investing in housing and community benefit funding that will have a lasting positive impact on the north of Scotland.
Ultimately, these vital projects are in our licensed conditions, and they will be delivered. The need is there, the supply chain is there, and consenting is progressing. They will make a huge difference to our energy system as constraints are eased and more homegrown clean energy is connected, providing a tangible economic payback for consumers. Distribution upgrades are more localized, but they are much greater in number and hugely exciting in their own right. In its early consultations on the upcoming price control, Ofgem agrees. The regulator points to significant growth in electricity demand driven by the advance of technologies like electric vehicles, heat pumps, and digital industries. Distribution's southern licensed area has enormous strategic potential as it unlocks data center growth in the M4 corridor, while the northern network will connect increasing Scottish renewables capacity with local communities.
We, alongside the system operator, are already creating the plans, and Ofgem is working on the frameworks to move from a just-in-time network to a well-planned strategic one. At the same time, the government is legislating for local area energy plans to create a bottom-up vision of local needs. We see this business as consistently delivering around 10% RAV CAGR through ED3, alongside high-quality index-linked earnings. It promises to drive growth for the group well into the 2030s and 2040s as we bring electrification to the doorstep. Renewables will be the foundation of the future global electricity system. SSE has a premium pipeline and world-class teams to deliver clean North Sea energy, which will power European economies for decades to come. In the course of our 2030 plan, we will complete major projects like Dogger Bank, which are backed by long-term, high-quality, and index-linked CfD contracts.
This reflects and is indeed a direct consequence of our demonstrable track record of driving value through selective capital allocation in premium projects. We also have further options in offshore wind and additionally a significant pipeline onshore. Our plan outlined today includes around GBP 2 billion of uncommitted CapEx with which to bring forward further investments, but let me be absolutely clear. SSE will continue to maintain the strict capital discipline that has served us so well in the past and prioritize value over volume. Any investment we sanction will have a clear route to value creation with adequate contingency for execution risk, deep consideration of supply chain capabilities, and will be delivered through our established models such as via partnership and project finance in offshore wind. We must not lose sight of the longer-term opportunities here.
The U.K. and Ireland will need a strong and diverse renewables base to meet their energy goals, and there is no doubt SSE will be a major part of that. I'll now pass you back to Barry for more on the visibility on earnings and value creation this plan gives us and how we are funding it.
Thank you, Martin. As we have outlined today, it is crystal clear that the right strategy at this point in the energy transition is to pivot the group further into the transformational networks opportunity. Martin has just outlined not only the strategic importance of this investment, but also the high degree of visibility we have, our confidence in delivery, and the market-leading capital growth it brings.
Over the next few slides, I will cover the clear visibility this strategic plan provides of value creation and earnings growth through the rest of the decade and beyond. Today's investment plan marks a significant evolution of capital allocation from the preceding five years. What has historically been a 50/50 investment split between networks and markets now becomes 80/20, upweighted in favor of networks. This upweighting provides the group with a significant enhancement in earnings visibility. By FY2030, we expect that around 80% of earnings will be index-linked through either the stable regulatory framework provided by networks or from our energy businesses, where CfD, ROC, REIT arrangements, and a rising capacity mechanism provide a clear line of sight over future earnings.
This is a material step up from our position today, offering investors significant earnings stability and protection as we materially grow the business over the course of the decade. At the same time, we will retain 20% of value upside potential, mainly through flexible services, which also provides the group with resilience against unexpected market events. With 80% of investment targeted towards networks, it should come as no surprise that the majority of expected earnings and asset-based growth will come from those businesses. Whilst negotiations over T3 remain constructive and ongoing, we expect the rapid regulatory asset growth in those businesses will deliver RAV of around GBP 40 billion by FY2030, and this will provide a firm underpin to the step up in long-term earnings.
While more moderate earnings growth is expected in renewables and flexibility, these businesses continue to provide the group with value upside potential, as I have mentioned. It is important that, as we pivot and grow, we retain a sharp eye on commerciality and efficiency. That is why we are also committing to driving upweighted annual recurring cost efficiencies across the group of around GBP 200 million by FY2028. This is an investment plan that has discipline and efficiency at its core, that offers visibility of value creation, and therefore provides us with the confidence to target adjusted earnings per share of between GBP 2.25 and GBP 2.50 by FY2030, after accounting for today's placing. This is equivalent to a 7%-9% CAGR from the FY2025 baseline that we reported in May.
That visibility of growth enables the extension of our sustainable and progressive dividend policy, with dividend per share continuing to increase by between 5%-10% per year to FY2030. This fully funded plan opens the door to an unprecedented investment opportunity that will change the group's shape, size, and overall trajectory. It also has a commitment to a strong balance sheet at its heart, reinforcing our commitment to existing investment-grade credit ratings whilst leaving ample headroom for further earnings growth well into the next decade. With GBP 33 billion of investment and GBP 6 billion of other cash requirements, such as dividend and interest payments, we expect the group will have a total cash requirement of around GBP 39 billion, which will be met via a combination of primarily self-funded sources.
Around GBP 21 billion is expected to come from strong operational cash flows during the period, with a further GBP 14 billion from increasing net debt and hybrid capital issued in a steady way throughout the plan. This expected debt increase is smaller than our threefold increase in regulated assets, and when combined with the growth in earnings, means we remain below 4.5 times net debt-to-EBITDA throughout the course of the plan. Around GBP 2 billion is expected to come from targeted asset rotations across the range of premium assets in our portfolio. These disposals will be timed to meet our investment needs towards the end of the five-year plan, with assets selected to maximize value. For the remainder, an equity placing of GBP 2 billion will support the significant increase in investment announced today.
We do not take issuing equity lightly, as you can see from the extent to which this plan is self-funded, but it is absolutely the right thing to do to unlock this exciting plan, grow the business, and deliver attractive returns for our shareholders. I will now quickly step through the structure of the proposed non-preemptive equity placing to certain eligible institutional investors which launched this morning at 7:00 A.M. The intention is to raise gross proceeds of GBP 2 billion through an accelerated book build, which represents approximately 10% of the current issued share capital. Concurrently, we have a separate retail offer in the U.K. through Retail Book. The proceeds we expect to raise today will enable us to deliver a plan that is the foundation for long-lasting and sustainable growth of the highest quality.
We have an exciting opportunity in front of us, and the plan we have announced today represents a pivotal moment in SSE's evolution. I'll now hand to Martin to close.
Thanks, Barry. We are building on the strength of a business that sits at the very heart of the energy transition. Our balanced portfolio of capabilities, assets, and businesses offers investors resilience against inflationary movements and market volatility. With supportive policy frameworks and delivery expertise, SSE has a strategic growth opportunity that will create sustainable value for both shareholders and society for decades to come. We now look forward to working with investors, governments, regulators, communities, suppliers, and consumers to help build a homegrown energy system that is independent of volatile international markets, more affordable for customers, and better for the environment. To conclude, this is a defining moment for SSE.
We have an ambitious plan that leans further into one of the world's fastest-growing electricity networks, underlying our status as a top-tier European energy player. It offers a clear, well-defined funding route that balances the need for financial strength and earnings growth, rapid capital growth in our businesses as we grasp this once-in-a-generation opportunity, and it offers long-term value creation with clear visibility over earnings growth and a sustainable and progressive dividend policy. This is a hugely exciting opportunity, and we are getting on with delivering it.
Thanks for your time this morning. We will now move to Q&A, and if I can ask that we please keep it to no more than two questions each so that we can get to everyone in the time we have. Thank you. I'll now pass over to the operator.
Thank you.
To ask a question, you will need to 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. We will now go to our first question. One moment, please. Your first question today comes from the line of [Rob Pulley] from Morgan Stanley. Please go ahead.
Hi, good morning. Yes, [Rob Pulley] from Morgan Stanley. First of all, congratulations on a very well-put-together plan, very exciting times, and great to see that earnings profile. I'll stick to two questions. I'm sure there's lots. Firstly, if we could talk about the asset rotation, GBP 2 billion as part of your funding package. The footnotes seem to imply it will come from renewables, but is that explicitly the case, and is any stake sale in electricity distribution ruled out or included in the guidance?
Secondly, given today's double news around data centers across Europe, may I ask, could SSE monetize any of its legacy power plant sites with grid connections for data centers, as we are now seeing elsewhere, not just in the U.S., but also U.K. and in Europe?
Thank you very much. Yeah, good morning, Robert. Thanks for the question. I'll look at the disposal question. The GBP 2 billion disposals, how I'd look at that is over 25% of that will come from our non-core assets, primarily our Slough Multifuel plant, which is the only one we've left. We also have a stake in a network, Telecoms Fiber Company, and we also have a loan note. In reality, those will all probably take place in the earlier parts of the plan. The remaining 75% of disposals will be towards the back end of the plan.
It could come from any of our business units. Ultimately, we will decide closer to the time what makes sense strategically and financially for ourselves at the time.
Thanks, Rob. Morning. To your other questions, I mean, data centers obviously are a fascinating question. Obviously, we saw the news this morning. I mean, the opportunity for data centers and the AI trend, I think, affects us across a number of businesses. Firstly, there is obviously the constructive reality of increasing demand for our generation businesses. There is also the flow through to distribution, where we mentioned in the presentation we have just given, we would expect an increase in demand, in particular our southern network and for distribution to have obviously a key role to play in delivering that demand. For the customer's business, they are also very well engaged with tech players in terms of CPPA possibilities.
Of course, that also applies to renewables and the ability to get generation projects across the line there. Specifically on thermal, we have always said that we think our sites offer very good value in terms of redevelopment and playing into transition trends. Just as a reminder, already on our sites, we have previous thermal sites, and these are mostly coal sites. We have built batteries. We have built Multifuel. We've provided emergency generation in Ireland for the Irish government, and we are also in the process of building an HVO plant at Tarbert. That kind of underlines the value we've all seen. The data center angle possibly adds to that going forward.
Very clear. Congratulations again. I'll turn it over. Thank you.
Thank you. Your next question comes from the line of Mark Freshney from UBS. Please go ahead.
Hello, good morning.
Thanks for taking my questions. I have two. Firstly, on the six overhead line planning consents that you're due to get middle of next year, I mean, you were very impassioned, Martin, about the conversations you've been having with the community and why these assets are essential. You are dependent upon something that's very much outside of your control. What is it that gives you confidence that this time it will only take 52 weeks rather than two and a half years? Just secondly, regarding the renewables business, I mean, I think there are some big capital commitments for Dogger Bank, etc. It seems to me that you really—I can't remember a time when you've actually reduced spend so much in that business.
Is it fair to assume that there's envelope in there for Berwick Bank and maybe a couple of other no-brainers, but you really are pivoting capital away from that business? Thank you.
Thanks, Mark. Let's deal with the transmission confidence and planning firstly. I mean, just to reemphasize some points here, our confidence in the transmission ability to deliver is firstly, we have had a strategically minded regulator that has given us enough notice to build capability. We referenced a fivefold increase in our resourcing. It is worth pointing out as well that that resourcing, some of that comes from the North Sea Oil and Gas Sea. We get the expertise from that. Also, we've managed to pivot some of our renewables expertise, project managers, project directors, engineers, etc., into that business. That's a high-quality resource business.
We've also, because of the strategic mindset of the regulator, been able to build supply chain frameworks and contract the supply chain, tier one supply chain partners that we know very well. We think we're well set up from that perspective. It comes down to the planning. That bit is less in our control. Maybe a couple of things. Firstly, you referenced the Scottish government and their 52-week commitments for overhead line planning consenting. We see that as backed on the ground by a tripling of resourcing they've put into the consenting units, which will ultimately define and decide some of those decisions. We see that as a positive. Just on the numbers, in the last, just over the last few months, we've had two substations and two overhead lines consented.
Right now, we have two out of five of our marine consents and two expected soon. We have five out of eight of our overhead line consents, and there are three of those in the 12-month process we just talked about, and 13 out of 21 substations consented, including Leatherton, which is a major one. That is the basis for our confidence. We have the ability to logistically get everything ready on the ground with people and supply chain. We think we have the backing of the Scottish government that understands the transition need and the economic importance of us delivering this infrastructure in a timely way.
Yeah. On the renewables CapEx, we have about GBP 4.5 billion in for renewables CapEx, Mark.
About over GBP 2 billion of that is currently unallocated, and we will only take that forward clearly if the projects, as Martin said earlier on, meet our hurdle rates and our discipline. That obviously also allows for Berwick Bank. We have done rigorous stress testing of various possible scenarios, and Berwick Bank will be part of that. Obviously, that is a multi-stage project, and obviously, the timing is to be confirmed and equity ownership stakes, etc., has to be decided in the future. That is all part of the scenario analysis we have done.
Thank you. We will now go to our next question. The question comes from the line of Dominic Nash from Barclays. Please go ahead.
Good morning, and congratulations, Martin, on your first results as CEO. I think it is a fair reflection to say that you are setting a high hurdle for future presentations. Congratulations.
Two questions from me, please. Firstly, could you give us some color on the wriggle room and the uncertainty around that GBP 33 billion sort of investment program to 2030? Because clearly, RIIO-T3 will get probably what, the first week of December or so. Secondly, on the renewables, where you're being marked at GBP 5 billion or GBP 4.5 billion, clearly we've got uncertainty over AR7 and maybe AR8. I’ll be interested to know why your confidence is set on GBP 33 billion, and realistically, could the CapEx numbers go up from there? Secondly, on the four and a half times net debt EBITDA sort of guidance that you'll be within that limit by 2030, I think that's unchanged from the current net debt EBITDA number.
Could you give us some color again on, I think, the S&P report recently, which was discussing about how you treat JV net debt and whether or not your net debt EBITDA numbers will need to sort of reflect the kind of, I think they call it, orphan debt in your JVs? Thank you.
Yeah, maybe just a couple of headline comments while Barry gets the numbers. I mean, we've said, and very strongly, the CapEx plan and funding options have been stress tested against a range of possible scenarios, and obviously, that is important. I mean, just on the specifics of AR7, clearly, we're in an auction process, so we would not say too much about that apart from just to remind investors that we have always and consistently taken a very strong capital disciplined approach to investments.
That applies to Dogger Bank, which is why today we're obviously announcing on Dogger Bank that we're still on track with exactly what we said a year ago. Obviously, that's a year later than we originally planned when we took FID, but we're still in line to beat our hurdle rate on that, and that's because of the risk management way we approach that. You'd expect us to apply all of the learnings from Dogger Bank, but all of that same investment philosophy to future renewable investments, including Berwick Bank, including Corry Glass, and other onshore wind prospects.
Yeah. Mark, on the GBP 33 billion, I think the easiest way to think about it is GBP 20 billion of that is for the 11 mega projects in transmission. The three largely, the eight ASTI projects and the baseline CapEx.
As Martin said, four of them are already construction, a really clear line of sight over the consenting, and obviously much firmer grip now on the supply chain costs as well. Real clear certainty over that. 20% of the CapEx is for the remaining network parts, so it is primarily distribution. Obviously, we are seeing a much more strategic approach from the regulator as we go towards T3. We expect a ramp up in CapEx as we go to the end of the plan. 20% is for the energy businesses, and about half of that is in construction at the moment. Whether that is the Dogger Bank or some onshore and battery projects. About GBP 3 billion is uncommitted. GBP 2 billion we have allocated for renewables, one in the flexible, but obviously that is quite fungible.
As I said earlier on, that will only be for projects that meet our strict hurdle rates. That is all part of the scenario analysis that we have done and the stress testing we have done, which allows for those renewables projects you mentioned earlier on. In terms of the balance sheet, we will be below 4.5 times net debt-to-EBITDA throughout the plan and at the end of the plan. In reality, we could go slightly above that as well and still be within existing credit ratings. In terms of S&P, our understanding is that they will be temporarily putting on the project finance debt for assets in construction only, and they are the only agency doing that.
For us, that will mean Dogger Bank B and C will go onto the balance sheet, but they'll come off again in the next two years because those projects clearly come off at the back end once they're into operations. Obviously, look, yeah, Berwick Bank is further out. Clearly, we've allowed for that in our scenario analysis. Again, those projects are back ended. It depends on the phasing of those projects, what equity stakes we hold in that as well. We won't need to change our 4.5 times net debt-to-EBITDA for that. That's all allowed for in the scenario analysis we've done. We've shared the plan with S&P. I'm not expecting any surprises there.
Thank you .
Thank you. Your next question comes from the line of Harry Wyburd from BNP Paribas. Please go ahead.
Hi, morning everyone. Thank you.
Two for me, please. The first is, I think when we've discussed equity needs in the past, you've talked about awaiting news, RIIO-T3 result and AR7. Have you had any discussions with Ofgem recently around returns, but also around fast money that made you more confident to go ahead with this big plan now, which I guess many of us are thinking you might do afterwards once you had some certainty? Was there a trigger here where you felt like you had better visibility? The second, it's on the thread of Rob's questions on data center sites, but actually a different angle on this.
If you think about how data and demand will actually play out in Europe versus the U.S., I mean, volumetrically, we've got tons and tons of new wind and solar capacity being added in Europe, relatively much more than in the U.S. Volumetrically, I think the picture looks a little bit different. In terms of peaks, maybe it does not. I wondered, what are you thinking in terms of capacity payments and the levels that capacity payments could potentially get to in a squeeze scenario for peak demand from data centers? Do you think the level of capacity payments that are clearing in the recent auctions are the sustainable level, or do you think there could be upside to those over time if you start to get real squeezes on the peak demand side?
Thank you. Okay. Thanks, Harry. Morning.
Firstly, on the question about Ofgem and T3 engagement, I think it's a kind of why now question. I mean, we said back in the summer that we expected a lot of news flow through 2025. That news flow included zonal pricing and a decision on that, which, I mean, obviously, that was one of the key themes, investor themes earlier in the summer. Obviously, we referenced in our presentation that we were delighted that the government listened to industry and listened to investors like us and ruled out and took zonal off the table. We obviously had the draft determinations, important. I'll come back to that in a second. We have also had the SSMC for ED3, where we saw a regulatory tone which continued to be strategic and forward-thinking and progressive. From a policy perspective, that felt all quite good.
On the ground, we've already referenced the progress we're making on consenting and indeed construction for transmission. When we put all of that together, we thought now was the right time to come out with an exciting plan and show shareholders our thinking. Just in terms of Ofgem discussions, of course, since that draft determination was published, we have been in good constructive discussions with Ofgem over the last four or five months. You'll recall the three themes, the three major themes that we were particularly interested in were the capitalization rates, the cost of equity and incentives, and also the TOTEX, the gap between our view of TOTEX and theirs in that draft.
Look, all I'd say is we've had good constructive conversations with the regulator we think understands the need to make networks investable and again, reflect on the SSMC tone for that as clear evidence of that. To your capacity mechanism question, this is firstly, I'd agree with you on the demand points. I think I've consistently played down some people's attempts to extrapolate a U.S. demand trend for the U.K. and Europe. I've always been much more careful about that. We are clearly starting to see constructive demand growth. Obviously, in the background, the government and NESO understand the need for capacity mechanism reform if they require new build peak thermal to accommodate that. Those reform processes are going underway. Obviously, you do have an example here.
In Ireland, you've seen capacity mechanism prices, I think, up to certainly over EUR 175 per kilowatt as Ireland's had to contract for that same peak capacity to look after the non-linear demand increases they've seen in that jurisdiction. There is an example there of how the capacity mechanism has had to step in at a higher price. What I've consistently said about the capacity mechanism is for new build, given the rises in CapEx that are ongoing for CCGTs, we think the cap will have to be reviewed. For existing plants, just because of the age of it, and again, we referenced it in our presentation and the need to get spares in and inventory and make sure engineering capability and reliability are absolutely guaranteed, we expect capacity mechanism payments to have to at least stay where they are to accommodate those kind of needs.
Effectively, the line I've used is before, it is difficult to be bearish on the capacity mechanism from its current price of around GBP 60 per kilowatt.
Very clear. Thank you.
Thank you. Your next question comes from the line of Pavan Mahbubani from JP Morgan. Please go ahead.
Hi team. Good morning. Thank you for taking my questions and echoing congratulations on the launch of the strategic update. I have two questions on returns, please. Firstly, in electricity networks, following up from an earlier question, should we take the confidence with which you've launched this strategic update as a confident message to the market that you now think you will achieve the 9%-10% nominal returns in T3 that you indicated were a requirement to increase your investment there? That's my first question.
My second question on a related theme in terms of renewables returns, can you give us a reminder? You talk about your strict investment criteria, but particularly for offshore wind and for Berwick Bank, how should we be thinking about the key metrics you'll be looking at? Can you remind us what your IRR target would be for that sort of project, whether unlevered or levered? Thank you for taking my questions.
Yeah. Just to reiterate on the transmission question, look, again, to repeat, we are in constructive discussions with Ofgem. We do not know what is going to be in their final draft, which I believe is still expected to be the 4th of December. We feel like we have been dealing with a strategically minded regulator who understands the need for this once-in-a-generation investment requirement to be investable. We will see what the final draft determinations say.
Sorry, the final determinations say, I should say.
Yeah. Hi, Pavan. Look, on the offshore wind, our return expectations are the same as what we laid out in the summer, where we increased to an equity return of greater than 12%. It is greater than 12%. That also allows for the fact that in the underlying modeling we do, we obviously build in the lessons learned and the experiences we have from Seagreen and Dogger Bank. We are quite comfortable in terms of the contingencies and the float within the programs there as well. Overall, greater than 12% equity returns.
Thank you.
Thank you. Your next question comes from the line of Peter Bisztyga from Bank of America. Please go ahead.
Yeah. Good morning. Two questions from me, please.
Firstly, I was wondering if you could bridge a little bit the GBP 22 billion net CapEx plan in transmission with your business plan. How much of the kind of further future projects in your business plan have been excluded? Is there any kind of cost inflation in the ASTI and LOTI parts versus that business plan? Is there any sort of upside risk to that GBP 22 billion CapEx if some of those future projects come through? Could that sort of pressure your balance sheet? That is kind of question number one. On your 225-250p guidance, just interested in some of the assumptions behind that. For example, does it have that GBP 2 billion of unallocated CapEx in renewables spent but fully unproductive, or are you assuming some sort of return already on that in your time frame?
Are you using the draft determinations sort of assumptions for your ET3 and I guess ED3, or are you using something different in terms of where you expect allowances for those businesses to end up? Thank you.
Thank you, Peter. I'll take those ones. In terms of the business plan, obviously, it was done over 12 months ago. Obviously, it's on a couple of pieces here. One, they're on different bases. This is a five-year plan to March 30. That was a five-year plan to March 31. That also included OpEx and obviously Ontario Teachers' part sharing there as well. Of the uncertainty CapEx that we laid out in that business plan, it was GBP 9.4 billion. We have 10% of that in our current GBP 22 billion. Our GBP 22 billion is very clear. GBP 20 billion is for the LOTI, the ASTI, and the baseline CapEx.
You have the GBP 2 billion, which is for new connections and part of that uncertainty mechanism going forward. In terms of the assumptions behind the 225-250p, obviously, look, as Martin has said earlier on, we had the draft determination. We had the benefit of four months discussions with Ofgem. We believe we have made sensible assumptions in the plan there. In terms of other assumptions we made through the plan, we have made quite sensible assumptions. We have assumed inflation comes down to around 2%. We have assumed base low power prices for merchant prices at the back end of the decade, on average in the high GBP 60 area, assumed cost of new debt 5%-5%. All quite sensible assumptions. On the question of the unallocated renewables, yeah, the bulk of that will be unearning towards the back end of the plan. Got it.
Sorry, just on the CapEx in transmission, do you see kind of any upside risk from those further future projects coming through that you have not included in your plan? No, we believe we have got a very robust CapEx plan with the visibility we have over the LOTI and the ASTI and the supply chain, and our view on the uncertainty mechanism and what we have taken in there. We have a very robust plan.
Got it. Thank you.
Thank you. Your next question comes from the line of Deepa Venkateswaran from Bernstein. Please go ahead. H ello, Deepa, is your line muted? Due to no response, I will go to the next question. One moment, please. Your question comes from the line of Ajay Patel from Goldman Sachs. Please go ahead.
Good morning and congratulations on the presentation. I have two questions, please. First is leverage.
I'm trying to think about this picture by the time we get to 2030 and thinking, okay, more of the business, there'll be less exposure to merchant, there'll be a higher quality business with more regulated proportion to it. I'm just wondering, this 4.5 times net debt to every dollar that you're keeping below over the plan, is there scope that that threshold increases, giving you the opportunity to invest more at the end of the plan? If that's the case, how do disposals fit into this? If you saw that improvement in that threshold, would that be then would you need these disposals, I guess, would be the question. The second part was on the international renewables business. Given the reduced aspiration on the renewable side, does it make sense to have an international renewables business?
What's the merits of having a business of this scale? I just wondered if you could revisit that for us. That would be quite helpful.
Yeah. Okay. Morning, Ajay. Yeah. So look, on the leverage, as you said, yeah, less than 4.5 times net debt-to-EBITDA through the plan, keep us in line with our current credit ratings. Obviously, the investing 80% of our CapEx in networks is going to mean a big shift in our earnings and our earnings quality. We'll probably go from networks being about 40% of our earnings to over 60% of our earnings by the back end of the plan. Clearly, that's their conversations for a different day with the agencies as that CapEx starts to get delivered and that earnings quality comes through.
If that does free up more capacity, clearly, yeah, we will look at the disposals and what we would do with that capacity at the time. The beauty of doing the equity today allows us to push those disposals towards the end of the plan and give us more flexibility and optionality around that. Just on international renewables, I think, Ajay, we've consistently said that the vast majority of our time, effort, resources, and focus is on our U.K. plan and our Irish plan. Given, obviously, what we've laid out today, that will continue to be very much the truth of it. We do still have development options, particularly in the southern Europe geography, where obviously we bought the SGRE pipeline several years ago, and we've got onshore wind that we can still develop and bring through.
That remains a kind of part of the plan.
Absolutely, the vast majority of the focus of Barry and I and the group is on delivering this once-in-a-generation organic opportunity in our home markets.
Sorry, can I have one follow-up just on that? When you weigh up the disposals, I know that 75% towards the end of the plan, and you have not been specific if it is renewables or networks.
Three years ago, you could sell network assets at real good valuations. You still can now. The aim was to reinvest it in renewables where you are making sizable premiums above cost of capital. The emphasis has changed in this strategy, and I applaud it. I am just thinking, if I am looking at that GBP 2 billion bucket of disposals, what is the merit to selling down on renewable assets versus selling down on networks at this juncture?
Yeah. Look, I suppose the key thing is no decision has been made. It could come from any of our businesses. Ultimately, we believe the distribution is a really attractive business, and we believe there's really good growth to come there in the next few years. We certainly like to capture that. All we're saying is that we have time to make that decision. What's the right thing for us to do strategically and financially? We do not need to make that decision now. That is for further down the road.
Okay. Thank you very much.
Thank you. As we are approaching the hour, we will now take our final question for today. Your final question comes from the line of James Brand from Deutsche Bank. Please go ahead.
Good morning. Made it in there just about. Congratulations from me as well.
Obviously, from the share price reaction as well, investors are taking it extremely positively. Congrats. I'll stick with the two questions. The first one is on Berwick Bank. Can I just clarify that it's not included in the plan? Certainly, it doesn't kind of look like it is. I guess in theory, it could be kind of an initial tranche. If it does go ahead, does that have any implication? If you want to see CfD, for instance, in AR7, would that have any implications for funding in the current plan? Or is it the case, given that obviously it would take quite a while to get to the point of commissioning and also your model where you raise equity typically towards quite close to commissioning, would it actually be falling outside the plan if you want to see CfD? That's the first question.
And then the second question is on the GBP 200 million of annual efficiencies targeted by full year 2028. That is a bit better than the GBP 100 million you had in the old plan. I guess from a starting point where you have already delivered some of those efficiencies, I was just wondering whether you could give some details on where those efficiencies are coming from. Thank you very much.
Yeah. I will take Berwick Bank. Look, yeah, we have done quite a lot of scenario analysis and stress testing of the plan. We have made allowance for Berwick Bank in that part of that stress testing. I said earlier on, we have GBP 3 billion of uncommitted CapEx.
Berwick is a multi-stage project, which obviously we still do not know what stages the projects may be in contracts at, what the timing for those are, ultimately what equity stakes we will hold on to. Clearly, any funding will be towards the back end of the plan. That is all allowed for in that, and that is part of the scenario analysis we have done. Just on the efficiency program, James, look, we said very clearly that we thought, we do not take issuing equity lightly, and we thought that we had to make sure we had done as much in the business to make sure that it was efficiently run. We were concentrated and focused on the key prospects and opportunities that looked ahead. We have spent a year going through a review. We slightly rescoped some areas as a consequence.
I mentioned earlier, we've actually been fortunate enough to redeploy some high-class renewable resource into transmission to help with that investment program. Of course, investors would expect us to be running an efficient business, and we've been very focused on delivering that. That is reflected in the number that we shared with you today.
Thank you very much.
Thank you. I will now hand the call back to management for closing remarks
. Thank you for your questions. Also, thank you, Sharon, as the operator, for helping us run this session. It has been a pleasure to outline today the transformative growth opportunity we see ahead of us. I hope that you share our sense of excitement for the years to come. Thanks again to Sharon for our operation facilitating the Q&A. Thanks to everyone for joining us today.
I look forward to meeting with many of you to talk more over the coming days. Thanks again.