Good day, and thank you for standing by, and welcome to the SSE half year results 2021/22 conference call. At this time, all participants are in a listen-only mode. After the speaker presentation, there will be a question-and-answer session. To ask a question during the session, you will need to press star and one on your telephone. Please be advised that today's conference is being recorded. If you require any further assistance, please press star and zero. I would now like to hand the conference over to your speaker today, Alistair Phillips-Davies, CEO. Please go ahead, sir.
Good morning, everyone. I'm joined today by Gregor in person and Martin digitally. Today, we plan to cover two things. Firstly, our interim results to September 30th, 2021, and secondly, a strategic update containing the detail behind what we are calling our Net Zero Acceleration Programme. You will have seen the outline of our CapEx plans in this morning's release, and I fully appreciate that you'll be keen to hear more. However, our performance in the half year to September 30th forms part of the foundation for that exciting plan. We'll reflect on that briefly before getting into the detail you've come for and answering any questions you might have. I'll start with a word on safety performance. Our day-to-day priority is always to ensure everyone goes home safe after every working day.
We've enjoyed a run of improving safety performance over recent years, and for the six months to September 30th, our total recordable injury rate fell to 0.16 from 0.19 over the comparable period in 2021. Nevertheless, every injury is an injury too many, and we maintain an ongoing determination to keep everyone safe. No review of recent months would be complete without mention of our involvement in COP26. Our principal partnership with the summit here in Glasgow has left us more committed than ever to a strategy that creates value while addressing climate change. Our strategy is fully aligned with the U.K. government's net zero strategy and that of many other countries around the world. Strategically, we've made good progress over the last six months, reshaping the group and driving forward our plans for growth.
Our disposals program has created GBP 2.8 billion of value and further simplified the group's focus on electricity assets and infrastructure. You also have seen earlier this month we completed a further capital recycling of a stake in Dogger Bank C. We've made steps forward internationally in Japan through a joint ownership company formed with Pacifico Energy. In Denmark with our bid for the Thor offshore wind tender, and in the U.S. with pre-qualification for the New York Bight auction. Closer to home, construction is progressing well on Seagreen, Dogger Bank A and B, and at Viking. We've amalgamated Berwick Bank and Marr Bank into a single wind farm with a potential capacity of 4.1 GW.
In thermal, Keadby 2 CCGT achieved first power in October, and we welcomed Track 1 accreditation for the East Coast Cluster, which includes our interest in the Net Zero Humber project. Turning to networks, excellent progress has been made in transmission on the Shetland HVDC Link, while need cases under the uncertainty mechanism continue to progress. In distribution, an ambitious RIIO-ED2 business plan goes to final submission to Ofgem in December. It's been a busy half year that has seen us emerge strongly from the pandemic and lay the groundwork for an acceleration to net zero. I'll now hand you over to Gregor, who'll run through the financial performance.
Thanks, Alistair, and good morning, everyone. While renewables output was significantly lower than planned due to the weather conditions, our other businesses have delivered a solid performance during the first six months as recovery following coronavirus continues. Adjusted operating profit increasing by 15% to GBP 377 million. Adjusted profit before tax increasing by 30% to GBP 174 million. Adjusted EPS increasing by 44% to GBP 0.105 , above the expected range provided. The second half of the year has started well, as average wind speeds have returned towards planned levels and with thermal and hydro plant, in particular, achieving strong prices in the market.
Subject to normal weather, plant availability, and similar levels of commodity prices over the coming winter months, we would expect to report full year adjusted earnings per share at a level which is at least in line with the current Bloomberg consensus of GBP 0.83 adjusted earnings per share. We'll provide further guidance later in the financial year. Market volatility has, however, impacted the reported metrics, which include GBP 1.4 billion of positive mark-to-market movements and operating derivatives held at the half year-end. As I've said before, the movements of these derivatives demonstrate the volatility that can arise on revaluation from period to period, which is unrelated to current operating performance and therefore excluded from SSE's adjusted profit measures. As you'll be aware, the last few months have seen significant volatility in both power and gas prices in the market.
An extended period of calm weather over the summer months coincided with a substantial increase in gas prices across Europe and has led to some significant movements in the wholesale market prices. However, I'm pleased to say that the group has managed any direct exposure to these short-term fluctuations well during the first six months of the year due to a combination of factors. Firstly, our balanced portfolio means our regulated networks businesses are insulated from power price movements, while thermal and gas storage have improved results by providing balance against lower renewables output. Secondly, disciplined application of clearly defined hedging policy has limited any short-term exposure to power price movements. In addition, low trading limits, which are closely monitored, reduced any potential exposure from liquidity or shape positions. Performance across the regulated networks businesses has been strong.
In transmission, adjusted operating profit was 58% higher than the comparative period, as the newly commenced T2 regulatory period resulted in earlier phasing of allowed revenues. In distribution, a combination of higher allowed revenue and volume recovery following coronavirus lockdowns in the prior period meant that operating profit increased by 34%. However, in line with the wider market, renewables have seen a significant decrease in adjusted operating profit to GBP 25 million in the current period. A prolonged period of high pressure across Northern Europe over the summer resulted in one of the least windy periods across most of the U.K. and Ireland, and one of the driest in SSE's hydro catchment area in the past 70 years. This shortfall, which was around 30% or 1.2 TWh below plan, was compounded by the need to buy back hedges in the volatile markets.
Despite the renewables results, together, these core businesses contributed over 95% of group-adjusted EBIT in the year. Elsewhere in our complementary businesses, Thermal demonstrated its value with strong balancing market performance and achieving higher market prices despite lower year-on-year availability due to phasing of planned maintenance to respond to system needs and unplanned outages. Merchant operation of the gas storage facility enabled that business to capture the spread in the gas price markets. Business Energy showed continued recovery following coronavirus lockdowns. However, Airtricity's recovery was impacted by a net adjustment to historic accruals in the period. The distributed energy result is adversely impacted by the inclusion of operating losses from the Contracting and Rail business up to its disposal in June. Following disposal, it is expected that this business will return to a small operating profit as it continues to develop battery, solar and heat network-related opportunities.
The corporate unallocated costs increased as transitional service agreements from past disposals unwind. The group, through the EPM and gas storage businesses, is exposed to price movements on net unsettled commodity contracts and physical gas inventory held. At September 30, the total net remeasurement under IFRS 9 of these unsettled contracts and inventory totaled over GBP 1.4 billion. However, these do not include the remeasurement of around GBP 1.3 billion of own-use derivatives, which are excluded from recognition under IFRS 9. Taking these derivatives into account, the group does not expect to realize significant gains upon settlement of those contracts. The volatility in these revaluations and the exclusion of certain contracts under IFRS 9 demonstrate why these remeasurements are unrelated to current operating performance and therefore continue to be excluded from SSE's adjusted profit measures.
In addition to these remeasurements, the higher power prices have led to GBP 182 million reversal of historic impairment charges being recognized on the SSE Thermal operating assets. This reversal, which does not impact on cash, evidences the strategic importance and value of flexible generation in a period of volatility. Finally, a number of other adjustments, including disposals and true-up adjustments on prior year exceptional transactions have been recorded as exceptional in the period. Like Alistair, I will save discussion of the capital investment required for our Net Zero Acceleration Programme until later. However, our existing capital investment plan for this financial year continues apace. Alistair has referenced the progress we have made on delivery of our projects this year, which has seen over GBP 1 billion investment to date. In many ways, we are already accelerating our investment in net zero.
Even excluding project development expenditure refunds, this represents a more than 50% increase on prior year spend and demonstrates our continued delivery. We now expect capital and investment expenditure to be in excess of GBP 2 billion for the full year. We've also progressed at pace to simplify the group, to predominantly focus on our Renewables and Networks core. Since the start of 2021/ 2022, we've completed the disposal of our Contracting and Rail business, as well as completing the disposal of gas production assets in October. We have also agreed to dispose of our equity stake in SGN for over GBP 1.2 billion. Disposal was conditional on receipt of certain regulatory approvals, and is expected to complete by March 31, 2022. Following completion of SGN, we will have achieved headline consideration of over GBP 2.8 billion, significantly in excess of the GBP 2 billion target.
Including the expected SGN gain on disposal, which we expect will be in excess of GBP 570 million, we have achieved over GBP 1.4 billion in exceptional gains on sale. The cash generated and gains recognized in disposal demonstrate the value SSE can create. Following the completion of the triennial valuation during the period, it was agreed that the contribution holiday received in respect of the SHEPS scheme will continue. Changes in financial assumptions and experience adjustments have meant that the combined net surplus for both schemes has increased by GBP 81 million during the period. SSE's strong balance sheet continues to be underpinned by high-quality assets and following continued capital investment in long-term generation and infrastructure assets, adjusted net debt and hybrid capital has increased by over GBP 700 million to GBP 9.6 billion.
In line with the accelerated net zero investment program, we're targeting a 4.5x debt-to-EBITDA ratio at the end of this financial year. Our S&P credit rating remains at BBB+ stable outlook, and our Moody's rating remains at Baa1, but has been updated to stable outlook earlier this morning following the strategic update announcement. These compare favorably to peers and reflects the group's business mix, funding plans, and future dividends. SSE remains fully committed to 2023 dividend plan, and continues to target dividend increases in line with RPI for both this year and next. As such, we're declaring an interim 2021-2022 dividend of GBP 0.255 . This will take the total dividends declared to over GBP 15 per share since SSE's formation in 1998. Our post-2023 plans will be covered in more detail shortly.
Looking ahead, we are clearly in a strong position to create lasting value for shareholders and to remunerate their investment with dividends going forward. In closing, our first half has demonstrated yet again the resilience of an optimal business model that drives both economically regulated and market-based earnings from assets and operations that are critical to decarbonization. I'll now hand you back to Alistair for his introduction to the strategic update that you've all been waiting for.
Thanks, Gregor. We've been spending the past two years moving our strategy forward, reshaping the group through strategic disposals and focusing it on the electricity infrastructure needed for net zero. As a result, we've been creating a wealth of opportunities right across our businesses, both domestically and internationally. As we said in May, this led to us taking a comprehensive evaluation of our CapEx plans and the sources of funding that will underpin them with the aim of maximizing our potential over the decade ahead. With that evaluation now complete, SSE is today setting out its resulting Net Zero Acceleration Programme, which represents the optimal pathway for the group. As you will see, the plan is transformative for the SSE group, ambitious for accelerated growth, focused on unlocking value from the transition to net zero, paced to deliver long-term shareholder return, and aligned with a 1.5- degree pathway.
Our Net Zero Acceleration Programme will accelerate clean growth, lead the energy transition, and maximize value for all stakeholders. It includes enhanced, fully funded GBP 12.5 billion strategic capital investment plans to 2026, alongside ambitious targets to 2031, all aligned with Net Zero. The plan represents the optimal pathway for SSE to build on its position as the U.K.'s clean energy champion, enabling delivery of over 25% of the U.K.'s 40 GW offshore wind target and over 20% of U.K.'s electricity networks investment, while deploying flexibility solutions and exporting renewables capabilities overseas. It is an ambitious but deliverable roadmap for how we will allocate capital and seize the fantastic opportunities we've created over the next decade.
Importantly, it contains the investment needed to meet a 1.5 degrees pathway, and it will maximize both earnings and asset value growth while remunerating shareholders with a new growth-enabling dividend plan. In this strategic update, we will set out how the reshaped SSE group provides the right blend of businesses to create sustained value on the journey to net zero. Provide details on the GBP 12.5 billion CapEx plan, which is a 65% step up with GBP 1 billion a year additional investment, and our plans for funding it. Outline what this bold investment plan will deliver by 2026 in terms of capacity, regulated asset value, and critically, shareholder returns. Set a clear ambition for where this trajectory will take us into the 2030s. The energy transition is gathering pace, and the opportunities in front of us are crystallizing rapidly.
Today, we're giving shareholders a comprehensive strategy for creating long-term value. It is no accident that we are ready to seize the wealth of opportunities that are emerging in the transition to net zero. Following a highly successful disposals program, the reshaped SSE group is now firmly focused on renewables and regulated electricity networks. We've talked about their net zero aligned growth potential already, but they share common capabilities in the development, construction, financing, and operation of world-class, highly technical electricity assets. The other businesses SSE retains are highly complementary, providing customers with additional green power solutions and routes to market. With significant synergies running through the group, together, the SSE businesses provide an ESG-aligned growth investment opportunity, an attractive mix of regulated and market-based income streams, and valuable linkages with each other which support efficient financing. SSE has been transforming into the optimal combination of electricity infrastructure businesses.
Our business mix allows specialization in electricity assets, such as in renewables, networks, and low carbon power stations, alongside the ability to create value right across the electricity value chain as new opportunities emerge in hydrogen, batteries, and distributed energy. This reshaping into electricity infrastructure has already demonstrated its value in terms of total shareholder returns since the retail transaction. In summary, SSE's business mix is very deliberate, highly effective, fully focused, and set to deliver long-term shareholder returns on the journey to net zero in both domestic and international markets. At COP26, I was encouraged by the collaborative efforts taken by countries across the world to tackle the climate crisis. The challenge of limiting global warming to 1.5 degrees C will require significant actions from individual countries to commit to cut emissions over the next decade.
This presents exciting options for SSE in its traditional home markets as well as overseas, where we are actively pursuing opportunities to export our renewables capability. Here in the U.K., the government's net zero strategy sets a globally leading ambition for net zero electricity in the U.K. by 2035. The strategy demands a quadrupling of wind generation, which in turn requires network capacity to more than double over the same period. To achieve this, it's estimated that over GBP 250 billion of investment will be needed in the U.K. alone. As the U.K.'s national clean energy champion, SSE is central to delivery of these opportunities right across the low-carbon energy value chain. As I mentioned earlier, we're delivering a substantial proportion of the networks and renewables investment needed by the U.K. government. We also have consent for the U.K.'s largest pumped storage project.
We're developing options for gigawatt-scale distributed energy solutions, and we're developing critical, flexible, first-of-a-kind carbon capture and hydrogen projects. We are accelerating investment in the low-carbon electricity infrastructure that will support the U.K. targets. This provides a platform for sustainable future growth abroad in activities where SSE is globally competitive and proven capabilities. Now for the highlights. This is what I like to call a plan on a page. We'll be investing GBP 12.5 billion over five years in high-growth, low-carbon assets, split approximately 40/40/20 across networks, renewables, and our flexible generation and other complementary businesses, respectively. The plan is fully funded and well-balanced, providing an attractive mix of regulated and market-based earnings. This is a huge acceleration of investment that will see an additional GBP 1 billion spent annually on high-quality options and projects.
To help deliver this accelerated growth, this morning, we're outlining our baseline plan to sell down minority stakes of around 25% in both transmission and distribution. They'll still be core to SSE's businesses, but the proceeds will help realize value and unlock further growth, both in our electricity networks and elsewhere in the group. This type of partnering has already proven successful for us in renewables, where we'll continue to deploy that approach to realize developer premiums and fund further pipeline and capacity growth, both at home and abroad. Our new growth-enabling dividend plan will enable us to offer an attractive growth profile while providing shareholders with strong income. The plan rebases the dividend to GBP 0.60 in 2023-2024, before targeting at least 5% dividend increases in 2024-2025, and 2025-2026.
We expect the dividend to total more than GBP 3.50 per share over this five-year period. We believe this represents a highly attractive combination of dividend and capital appreciation. This investment will drive serious growth. By 2026, we expect to add over 4 GW of net renewables to double our capacity, increase underlying networks RAV by around 10% per annum, and achieve a compound annual growth rate of between 5% and 7% in adjusted EPS over the course of the five-year plan. We plan to maintain a strong investment-grade credit rating too, targeting a net debt-to-EBITDA ratio of 4.5 x. This will enable the SSE Group to continue delivering projects at record-breaking scale, such as Dogger Bank and Berwick Bank. Finally, there's the longer-term vision. Fast-forward to 2026, and delivering this plan will have given us a fantastic platform from which to grow further.
This is just the foundation. We're looking further ahead, and we are thinking bigger. By 2031, we're targeting over 13 GW of net installed renewable capacity, building on our existing ambition to add 1 GW a year of net new renewable capacity by the second half of the decade. Our renewables pipeline of at least 15 GW, maintaining the 2026 level. Another 3 GW net of low-carbon flexible technologies, including carbon capture and storage, hydrogen and batteries. The network's RAV of between GBP 11 billion and GBP 13 billion, net of minority interests. These targets will in turn mean we can set and meet 1.5-degree aligned Science-Based Targets carbon targets. In a world in which decarbonization ambition continues to expand exponentially, we're positioning ourselves to take more opportunities as they emerge. These are exciting times for the SSE Group as it delivers for shareholders and society.
It will consolidate the work we've done over the past few years to transform the business, while building a foundation to achieve a significant international footprint into the 2030s. The strategic review carried out by the board was robust. Our resulting plan reflects the immediacy of the net-zero opportunities ahead, the views of all stakeholders, including some quite vocal but constructive public opinions, and the considerations we've given to all possible routes to value creation. Ultimately, the review sought to identify the best way to drive sustainable long-term value for all stakeholders, deliver on the scale of our CapEx investment and growth opportunities, and optimize the sources of funding for those commitments. We ran a number of detailed scenarios, and considered all possible asset combinations, which were fully tested with independent advisors.
Following that rigorous process, we concluded unequivocally that the existing strategy combination of renewables and networks, together with integrated complementary businesses, was the optimal route to deliver on our growth potential by providing funding power to drive large-scale CapEx projects forward, maintain a strong investment credit rating and an efficient financing capability, retain existing shared skills, intergroup investment opportunities and synergies. Importantly, optimize risk-adjusted returns for long-term shareholder value. This plan represents the path that will create the greatest long-term overall value for shareholders and society. SSE's purpose to provide the energy needed today while building a better world of energy for tomorrow proved powerful in steering us through the worst of the coronavirus pandemic, but its ultimate aim is to tackle the climate emergency. Our purpose was central to the board's considerations when conducting the strategic review that's culminated in the plan being presented today.
This purpose, coupled with a strategy of creating value for shareholders and society in a sustainable way, is the driving force behind our leadership position in the energy sector. Our purpose aligns with that of governments and society. It was behind our participation in COP26 this month, and it guides everything we do. I use the plural governments very deliberately. The climate emergency is a global phenomenon, stimulating decarbonization the world over. As decarbonization of energy accelerates, electricity becomes the core of the global energy system. Global electricity generation is predicted to at least double by 2050, with generation from renewable technologies needing to at least treble as a result. SSE is among the best in the world at deploying renewables. We're the lead player in the world's largest offshore wind market and the world's fifth-largest national economy.
By developing platforms in international markets like East Asia, Europe and North America, we're creating options in carefully selected international markets where we see future growth. We bring our capabilities in development and delivery with local knowledge and other important skills provided by carefully chosen partners. However, hitting net zero also requires decarbonizing heat and transport. According to recent projections by the U.K. government, the increasing decarbonization of society will more than double electricity demand by 2050, and this will require electricity networks to increase both their capacity and reach to meet this demand and keep the system in balance locally. This means networks are no longer just steady yield businesses. They're exposed to the same growth opportunities as renewables, and our plans reflect this. The U.K. Prime Minister seeks a clean electricity system by 2035, and the energy crisis has turned attention towards gas price dependency.
We've seen a dramatic reduction in our own carbon emissions during the last decade, as SSE's legacy coal output was phased out in an orderly and managed way. Our generation mix through the next decade will be defined by the rapid deployment of renewable and low-carbon technologies. Our enviable pipeline of onshore and offshore development opportunities will enable us to reach 50 TWh of clean, renewable generation by 2031. However, recent market volatility, worsened by calm weather conditions, has renewed focus on the optimum way to provide security of supply and price. Whilst the current system needs have been provided by unabated generation plant, albeit at high prices, this cannot continue in a clean electricity system by 2035. SSE is flexible generation already, and we have more optionality in low carbon flexible plants than any competitor in the GB market.
We boast mature options in pumped storage, carbon capture and storage, hydrogen and batteries. By 2031, we expect over 90% of SSE's electricity generation output to be from decarbonized sources. This represents a key interim milestone in the transition to net zero, not just for SSE, but for the U.K. as a whole. Aligning to a 1.5-degree pathway is urgent, and it has cross-party political and international support. SSE is at the center of this and has the capabilities and options that will be absolutely vital to achieving net zero, whatever pathway you choose. We continue to engage stakeholders on climate-related issues every step of the way. We continue to champion our just transition strategy, the first of its kind by a corporate, and we firmly believe that fair tax, a real living wage, and green job creation underpin a just transition.
We received overwhelming support at our 2021 AGM for an annual shareholder vote on our net zero plan, and we took that as a clear signal of ongoing support for our decarbonization efforts. With a window of opportunity closing to prevent the most dangerous climate change, plans to decarbonize the global economy must accelerate. That is why we can announce today an acceleration of our science-based carbon targets to align with the Science Based Targets initiative's 1.5-degree pathway for the power sector. These revised targets for Scope 1 and 2 absolute emissions cut in half the previously planned emissions for 2030 for SSE and are a crucial step towards achieving net zero across all business activities by 2050 at the latest. This acceleration towards net zero is integrated with the accelerated investment we're outlining today.
We have the confidence to deliver on these challenging targets because of the wealth of clean growth opportunities we are creating. There's a lot of detail on this slide that Gregor and Martin will come onto shortly, but the point I'd make is that the range of opportunities available to us is second to none. Today, we're building more offshore wind than anyone in the world, including the world's largest offshore wind farm at Dogger Bank, and we're developing at Coire Glas, the first new pumped storage project in the U.K. for 30 years, providing critical flexibility. Only by being part of a larger group can this world-class renewables business take on projects of this scale, backed by a stable asset base and credit rating. Our networks investment capabilities and pipeline are also immense.
We are pursuing major projects above and beyond the RIIO-T2 settlement through Ofgem's uncertainty mechanisms, and our RIIO-ED2 plan is a step up from ED1 and will yield still more investment in bringing net zero to the front door. In our people, we have world-class asset developers, the best builders, and the best operators. Again, like the business mix and asset base, this is no accident. We're focused on long-term growth, and we invest in the assets and people to make it happen. To recap, before I hand over to Gregor, what we have for you today is a fully funded plan that enables SSE to cement its leadership position in the U.K. while expanding overseas.
It's a plan that will accelerate the group's growth over the next five years with more installed renewables capacity, more much-needed low-carbon flexibility, more networks RAV, attractive and visible EPS growth, and manageable levels of debt. It rebalances our CapEx allocation across the group, proposes to extend our highly successful partnering model to electricity networks, and sets out a growth-enabling dividend plan. This is a platform for longer-term growth and ambitious targets over the coming decade as we develop, build, operate, and invest in the infrastructure that will help deliver net zero. I'll now ask Gregor to talk you through the five-year CapEx plan in more detail.
Thanks, Alistair. I've always said that I'd much rather face questions about how we're going to fund the extraordinary investment opportunities available to us than questions about where the growth is going to come from. Today, we're not only setting out an ambitious growth plan to 2026, we're also clear that this plan is fully fundable and deliverable. Our track record of creating value for shareholders is clearly strong. For the next five years, we'll see a significant acceleration, investing 65% more than existing plans. Our renewables capacity will double, and we'll grow and sustain our secure pipeline to more than 15 GW. Be in no doubt that as part of the SSE group, the renewables business will grow and thrive with our credit rating, diversified earnings, and financial strength giving us the ability to build some of the world's biggest projects.
Networks RAV will increase by almost GBP 1.5 billion, even accounting for our sell-down plans, indicating the huge levels of investment being created in transmission and distribution. These are now growth businesses requiring substantial CapEx investment and offering index-linked growth, and our plan will enable us to harness more of this. Over the five years, we're targeting 5%-7% per annum adjusted EPS CAGR, maintaining a 4.5x net debt to EBITDA ratio, and of course, aligning ourselves to the 1.5-degree Science Based Targets as outlined by Alistair earlier. We think these targets are impressive given competitive markets and demanding regulation, and they'll allow us to provide shareholders with attractive growth-aligned returns from a dividend targeting at least 5% annual increases to 2026 after rebasing at GBP 0.60 in 2024.
We have exceptionally attractive growth options right across the group. This plan will see us significantly increase the rate at which we are investing, adding GBP 1 billion a year of additional CapEx onto existing plans. It also reallocates CapEx across regulated and non-regulated businesses, providing the right balance of risk and returns. In short, the plans will deliver enhanced investment and a balanced mix of low carbon infrastructure across our core networks and renewables businesses, and our complementary businesses as well, while retaining a strong investment-grade credit rating. Within that, we're dialing up SSE's renewables share of CapEx by over 2.5 x the previous plan. That increase equates to around GBP 3 billion of additional investment over the five years and reflects the scale of the opportunity and the strength of our renewables pipeline.
Networks will account for a smaller proportion of CapEx as we rebalance, but this is net of our anticipated stake sales. We still expect to invest more in absolute terms into networks during the period as we capitalize on the high growth opportunities on offer. SSE's 40/40/20 CapEx allocation strikes an optimal balance of risk and return across an attractive blend of investments. While we talk a lot about the renewables and networks investments, much of that last 20% will be in investments in flexibility, which will likely yield higher returns given the less mature nature of the technologies involved. Overall, this is a plan that offers balanced risk and returns based on the optimum mix of regulated and unregulated assets.
Not only is this a comprehensive and fully funded plan, but it's also a plan that offers a great deal of clarity since around 60% or GBP 7.5 billion is already committed. The bulk of an uncommitted spend is in renewables, transmission, and thermal, where we see the significant additional growth opportunities Alistair outlined earlier. Here we have good visibility and confidence on our potential investments, but these remain subject to government and regulatory processes in which we have a great deal of experience. Well-chosen partnering has been a key part of SSE's financial strategy for many years. SSE is well-placed to manage development risk and can create value from selling down stakes to retain typically 40% of a project and working with equity partners for construction or operation.
This established approach brings benefits, including securing developer premiums, reducing single project exposures, containing non-earning debt, and bringing in partners with different risk appetites at their preferred stage of the project cycle. We've also previously been clear that we would consider extending a partnering approach through sales of minority interest stakes in our electricity transmission and distribution businesses. Partnering would release capital to facilitate growth opportunities in the networks businesses and elsewhere in the group. The exact timing and scale of any sale are yet to be decided. In order to realize all of this growth potential while maintaining the most attractive balance of risk and returns across the group, today's plans assume a 25% stake disposal in both transmission and distribution, modeled annually in the financial year 2024.
This would mean our net share of RAV would grow from around GBP 7.5 billion currently to almost GBP 9 billion in 2026, and between GBP 11 billion and GBP 13 billion in 2031, representing RAV growth in excess of 50% over the decade, even after the 25% divestment. We've recycled capital in SSE Renewables to grow, and we've also seen this potential as a key enabler in networks too. Transmission and distribution have huge CapEx requirements, and bringing in financial partners will crystallize value and enable further growth in both networks and SSE's other businesses. It will allow SSE to optimize growth plans and will maintain the substantial synergies the group offers, enabling SSE to have enviable positions across the low-carbon energy value chain.
In 2018, we made a clear commitment to shareholders in the form of a five-year dividend plan to 2023. We will deliver on this and continue to target dividend increases in line with RPI in the remaining two financial years to March 31, 2023. However, with 18 months of that dividend plan remaining, the board has considered what the right dividend policy should be thereafter. We assessed and balanced a range of factors, including financial and sector market trends, credit metrics and cash flow profiles, total shareholder returns, growth opportunities, and different funding options, including networks stake sales. Based on the favorable conditions for growth Alistair outlined earlier and SSE's unique opportunity to create value in the transition to net zero, the board concluded that in order to maximize value creation. The future dividend policy should be aligned to the company's growth ambitions.
After fulfillment of our existing commitments to 2023, we will rebase our dividend to GBP 0.60 in 2023/2024, before targeting at least 5% dividend increases in 2024/2025 and 2025/2026. We also intend to retain a scrip dividend option for shareholders, but to restrict earnings dilution by capping take-up at 25% from this year onwards. This will amount to total dividend of at least GBP 3.50 a share over the five years to March 2026. Following this dividend certainty over the five-year plan, the aim is to set SSE's businesses up to support a similar level of annual dividend growth in the longer term. This rebased dividend with attractive growth balances income to shareholders with an accelerated growth plan based on high-quality assets.
It represents a unique opportunity to invest in a balanced business with a clear dividend outlook to 2026 and beyond, with a strong growth story facing into the transition to net zero. We've always been clear about our commitment to maintain a strong investment-grade credit rating. This investment plan is designed to maintain credit ratios comfortably above those required for an investment grade. This will be supported by a rebased dividend and is aligned with a net debt to EBITDA target ratio of 4.5 x. Ultimately, this will help underpin our ability to invest in large-scale projects that are needed to deliver net zero. In line with this, today, Moody's have published an update confirming SSE's rating and removing it from negative outlook, which is indicative of the robust nature of this plan.
With so many opportunities available to us, every investment we make has to create value, and we only allocate capital where we see returns comfortably above our WACC. In offshore wind, we target equity returns in excess of 10%. In competitive markets, that target remains possible from the best sites and with strong project delivery. In onshore wind, we aim for a spread to WACC on unlevered projects of 100-400 basis points, with the higher end of the range reflecting assets with higher levels of merchant risk. When evaluating carbon capture and hydrogen investments, we'd expect higher returns of 300-500 basis points spread to WACC, given that these are our earlier-stage, first-of-a-kind technologies dependent on the nature of support mechanisms available.
In networks, we expect to achieve a return on equity of between 7%-9%, with some outperformance assumed as we build a highly valued regulated asset base that provides financial stability. In short, we take a disciplined approach to our investment decisions on a technology and project basis. While the options in front of us are immense, we will only take them forward where we are clear that they are accretive. The five-year investment plan announced today optimizes CapEx allocation. It balances risk and financial exposure between large-scale projects, different technologies, and index-linked earnings. Indeed, around 60% of EBITDA is underpinned by index-linked revenue streams. With an expected CAGR to 2026 for EPS of between 5%-7% after dilution from minority stake sales, it provides a stable platform for long-term earnings and progressive shareholder return.
As you can see, this is a fully funded plan that optimizes SSE's options. 90% of the spending is earmarked for net-zero-focused assets and businesses. With our baseline dividend commitment of at least GBP 3.50 per share and interest in tax, we forecast the group will require around GBP 18 billion to deliver this plan. Operational cash flows, including developer profits, which are treated as operational activities, will fund around 65% of the investment plan. Asset disposals, which will comprise the GBP 1.2 billion disposal of SGN, expected to complete this financial year, alongside the minority transmission and distribution stake sales and other residual non-core asset disposals, will provide another 25% of funding. The remaining 10% we expect to be funded through incremental debt issuance, ensuring the credit ratios I outlined earlier are maintained and balance sheet strength is not sacrificed.
By setting out our sources and uses of cash in this way highlights two things. First, the importance of continued capital discipline. We've shown time and time again that with effective CapEx allocation, raising debt and capital recycling, we can unlock accretive opportunities in a decarbonizing energy sector. Second, the value of partnering to maximize growth. In renewables, we're able to realize significant developer premiums through our joint venture partnering approach, selling down stakes at the right point in the development cycle to realize value and fund further pipeline growth. As we've highlighted already today, we believe extending a partnering approach to our networks businesses can have a similar effect. As Alistair said earlier, this is not a restrictive plan, and we'll be well-positioned to capitalize on any further favorable opportunities that might arise. Our track record shows we are highly effective at generating such opportunities.
I'll now hand you over to Martin, who will take us through his business units.
Thanks, Gregor. At the risk of over-repeating ourselves, SSE is building more offshore wind than any company in the world right now, and that's a stunning statement and testament to our capabilities in delivering projects that will provide strong growth in terms of both long-term earnings and asset values. Our updated CapEx plan will see us invest GBP 5 billion in renewables over the five years. Around 50% of this renewables CapEx is on assets currently under construction. 30% is forecast spend on projects currently under development, and 15% on future pipeline. By 2026, we will have constructed Seagreen, Dogger Bank A and B, and Viking, adding 2.6 GW of new renewables capacity to the portfolio.
These will likely be complemented by Dogger Bank C and Seagreen 1A, as well as Arklow in Ireland, assuming progress is as SSE would expect. That all leads to an overall doubling of our renewables capacity, and we are on track to enable delivery of over a quarter of the U.K. government's offshore wind target to 2030. We have the track record and capabilities to deliver these world-class projects, and they will create value. We expect to see a CAGR of 11%-12% in adjusted EBITDA over the period. Looking further ahead, the range and scale of opportunities targeted will amount to significant growth potential for SSE Renewables during the course of the decade.
We have clear line of sight to a trebling of our renewables capacity by 2031 to more than 13 GW, reflecting our targeted run rate to add over 1 GW of new renewables capacity per year. This would see us increase renewables output fivefold over the next ten years to hit 50 TWh. Driving this growth is our superior existing secured pipeline. SSE Renewables already boasts an enviable secured pipeline of around 10 GW and 2.6 GW of this pipeline is already under construction, which includes the world's largest offshore wind farm at Dogger Bank. The remaining 1.4 GW required to reach our 2026 targets will be supplied by our existing options.
Pipeline is the lifeblood of a development business, and that is why, under plans set out today, by 2026, we would expect to reach and sustain a secured pipeline of over 15 GW for at least the second half of the decade. Within our existing secured pipeline, the breadth and quality of named options is evident by the table shown. As well as SSE's flagship construction projects, offshore options include Berwick Bank, which would have a potential capacity of 4.1 GW. We have Coire Glas, which could be the U.K.'s largest pumped storage project, but I will come on to that later. However, our future secured pipeline depends on us establishing and maturing our early-stage development areas today. To that end, we have over 10 GW of future prospects that we are working on building into the secured pipeline.
These future prospects will drive the continued growth of the group in the second half of the decade and beyond. These exclude near-term opportunities for further growth, including the ScotWind auction, where we have submitted compelling bids with our partners CIP and Marubeni, as well as other options we are opening up internationally. In Seagreen 1A, Berwick Bank, North Falls, and Arklow Bank, we have a range of extremely high-quality projects with seabed already secured. If recent developments tell us anything, it's that seabed is an increasingly valuable commodity. These projects are at different stages, but are highly deliverable within a decade and will all be needed if government targets in the U.K. and Ireland are to be met. As you can see, our early steps towards carefully selected international expansion are already adding options to our future pipeline.
As the U.K. national clean energy champion, we will always have a strong foundation in these domestic markets. A more internationally diverse pipeline can unlock far greater renewables growth. We are primarily interested in offshore and onshore wind, where we are well-placed to export our capabilities, working with local partners to enter fast-growing markets. To that end, we recently announced our entry into the Japanese offshore wind market by acquiring a majority stake in a joint ownership company formed with Pacifico Energy. The deal saw us acquire 10 GW gross of early-stage development opportunities with potential to enter bid rounds around the mid-2020s. Meanwhile, earlier this year, we announced our partnership with Acciona, a leading Spanish renewable energy company, to form a 50/50 joint venture to enter the emerging Iberian offshore wind markets. We subsequently expanded the JV scope to include Poland as well.
These markets will not reach the size of the North Sea, but over the longer term, they will create opportunities. Elsewhere in Europe, we are also partnering with Copenhagen Infrastructure Partners once again and Danish energy company, Andel, on the tender process in Denmark to develop the 800 MW-1,000 MW Thor wind farm off the country's west coast. We continue to look at the East Coast of the U.S. both organically and via partnerships, and have looked at offshore and onshore platforms there as well. And having recently incorporated SSE Renewables North America, we've submitted a pre-qualification application to the Bureau of Ocean Energy Management to participate in the New York Bight auction. Our imminent move into Japan's growing offshore wind market represents an exciting step for SSE.
It will help support the further expansion and diversification of SSE Renewables' longer-term growth pipeline in a country in which offshore wind growth is a key policy aim. Japan already has clear offshore wind targets of 10 GW by 2030, and up to 45 GW by 2040 as the country seeks to decarbonize. The new company contains a talented local development team and 10 GW of existing early-stage offshore wind development projects spread across Japanese waters. The existing early-stage projects are expected to use a mixture of fixed and floating technology, and the two most advanced projects have secured grid access and advanced local stakeholder engagement has been undertaken. In Pacifico Energy, we have been fortunate to find a partner with not only local knowledge, but developer capabilities that match our own. These are initial steps, but there will be more to come.
While we see plenty of opportunity, as ever, a measured approach with capital discipline will guide our decisions. We will only execute on the most accretive options. Back in more familiar climes, our hydro fleet continues to provide critical flexibility services to the system. It is a well-established technology, but its role in a renewables-led energy system in the future will only grow in value, and recent market volatility has highlighted its importance in balancing the system and enabling wind. Our secure pipeline also includes Coire Glas. This would be the UK's largest pumped hydro storage project and the first to be developed in over 30 years. Construction would take around five years at an estimated GBP 1.2 billion-GBP 1.5 billion, and its life would far exceed 40 years.
Located in the Highlands, the consented 1.5 GW project would have 30 GWh of storage, more than doubling existing U.K. capacity, and it could power 3 million homes for 24 hours. The system benefits are significant, and they include reducing wind curtailment and helping accommodate more wind onto the system, maintaining grid stability and displacing fossil fuels. Engagement with government and Ofgem on the need for a revenue stabilization mechanism has been positive. Over the summer, BEIS highlighted the importance of long-duration storage in its smart systems and flexibility plan with a separate consultation launched, and recent events have clearly served to underline the case for the project as the value of flexibility and storage has come to the fore.
We anticipate that there will be clarity on CfD policy direction for pumped storage next year, and stand ready to build in the second half of the decade. As renewables capacity on the system increases, so too does the value not only of storage and flexibility, but also of lower carbon thermal generation. All credible net zero pathways show that lower carbon thermal generation has an important transitional balancing role to play in ensuring security of supply while the U.K. and Ireland decarbonize. However, we are in no doubt about the need to decarbonize and repurpose our fleets for the net zero world, and we are making progress. Our new highly efficient Keadby 2 CCGT will displace less efficient generating plants on the system and has the potential for hydrogen blending in the future.
In terms of SSE's older plants, we continue to envisage the closure of more than 50% of the existing fleet by 2030. Despite year-to-year variability, we expect to meet our updated absolute emissions and carbon intensity targets by 2030 at the latest. Meanwhile, our partnership with Equinor to develop plans for a number of first-of-a-kind low-carbon power stations in the U.K.'s Humber region, as well as at Peterhead, opens the way to the U.K.'s first power station with CCS and the world's first 100% hydrogen-fueled power station. With government support, well-located existing assets, a strong carbon pricing backdrop, and the value of flexibility becoming clearer by the day, there are real tailwinds for our future low-carbon thermal portfolio.
Our plans for 2026 include GBP 600 million of CapEx in this area, but we expect this to ramp up in the latter half of the decade in line with delivery timetables for the U.K. CCS program. As Gregor mentioned earlier, the higher returns available from these first-of-a-kind technologies will help optimize the balance of risk and returns across the group. Flexible and renewable energy are at the heart of SSE, which creates a strong platform for our distributed energy and our customer businesses. The distributed energy business is primarily interested in batteries, solar, electric vehicle infrastructure, and heat networks, all from a growth perspective. It is developing a combined battery and solar pipeline of over 1 GW, of which 350 MW is currently secured.
On batteries, we acquired a 50 MW project in Salisbury and has surfaced a number of interesting projects with partners externally as well as internally on the SSE estate. Options exist at Ferrybridge and Fiddler's Ferry for 150 MW batteries, for example. Solar is at an earlier stage, but offers potential given SSE's capabilities, and together, SSE sees these technologies as offering a multi-GW opportunity. The business also has ambitions to develop hundreds of super-fast charge points around the country, and the heat business continues to expand. These businesses all align with the group's net zero focus strategy and offer interesting platforms for growth. SSE Business Energy offers a route to market for renewable power, and with the advance of corporate PPAs and corporate decarbonization, the potential for growth is clear and the synergies are evident. In Ireland, this is particularly the case with data center growth.
Whilst the group does not see itself as a domestic retailer in the price cap GB market, SSE Airtricity is a great business that works alongside generation in the more integrated Irish market structure. Customer businesses are our green shop front and part of the SSE story. SSE has the markets and electricity asset skills to enable these businesses to prosper, and they are highly complementary to the other businesses within the group. I'll now hand back to Alistair, who'll cover our networks businesses and conclude.
Today, thanks to net zero and the related increase in electricity demand described earlier, I would characterize them with a very different word, growth. Across the two network businesses, we expect to deliver 8%-9% CAGR in combined gross RAV over the next 10 years, hitting nearly GBP 12 billion in 2026, and potentially up to GBP 18 billion in 2031. With almost GBP 7 billion of CapEx by 2026 or in excess of GBP 5 billion net of stake sales. These businesses, with their regulatory asset base, provide two clear benefits within the group. First, they provide index-linked returns, which are a scarce commodity in today's environment. Second, they provide the group with the capital strength it needs to deliver and develop large-scale capital projects, such as the biggest offshore wind farm in the world.
These businesses are fundamentally growth engines, growing themselves while enabling net zero delivery across the group. Transmission's RIIO-T2 business plan, a network for net zero, reached a final settlement of nearly GBP 2.2 billion of approved investments to make the network fit for the future. Add to this, the Shetland HVDC Link and a certain view of total expenditure across T2 becomes around GBP 2.8 billion. We said in May that this would take the transmission RAV to above GBP 5 billion by financial year 2026. However, we also said that growing a network to meet net zero would require use of Ofgem's uncertainty mechanisms.
While the extent of the additional projects approved by Ofgem remains to be seen, we are progressing the proposed East Coast HVDC link from Peterhead to the northeast of England to meet a 2029 energization date, seeking to reinforce the network in Argyll to 275 kV, and looking to replace the Fort Augustus to Skye line. Initial need cases for all these projects have either been or will shortly be submitted. Further investments to connect new renewable generation through the volume driver uncertainty mechanism are also likely. While these remain subject to a range of factors, including generator commitment, planning, and of course, Ofgem, the direction is clear. Ambitious government renewables targets suggest these projects will be sorely needed. Taken together, we could see an overall business gross RAV reaching around GBP 6 billion by 2026, which would be a gross CAGR of around 12%.
Once the stake sale is factored in, net CapEx is expected to be in excess of GBP 3 billion, a greater than 10% increase on the previous plan. It's also likely that there will be further investment needed through T3, although this growth is less visible. ScotWind is expected to unlock up to 10 GW of new offshore wind, meaning further system upgrades and the likely second HVDC link from Peterhead to England. We'd expect gross RAV to reach between GBP 8 billion and GBP 10 billion by 2031, representing a CAGR of 9%-11%. If the timing of the reinforcement required to facilitate the ScotWind rollout were to be accelerated, we could see a path for gross transmission RAV to grow to as much as GBP 12 billion by 2031.
Based on the system operator's own forecast, connected generation in the north of Scotland could increase from around 8 GW today to nearly 25 GW by 2030, and almost 50 GW by 2050, depending on the scenario chosen. These forecasts are only going in one direction. SSEN Distribution has submitted an ambitious stakeholder-led draft ED2 business plan, which proposes around GBP 4 billion in gross baseline investment, an increase of around a third on an equivalent ED1 period. Translating that into the five-year plan to 2026, we expect to see around GBP 2 billion of CapEx as we move into the ED2 price control period from 2023. This equates to an increase on annual investment of more than 15% and incorporates just part of the ambitious distribution investment plans out to 2028.
The ED2 business plan is subject to final submission next month, but we expect it to achieve GBP 5.5 billion gross RAV by 2026, representing a CAGR of around 8% across the five years. I've already mentioned the value that electricity networks bring the group in terms of portfolio diversity. Within this, our business has a unique geographic spread, offering operational resilience and growth opportunities at both ends of the U.K. The Climate Change Committee has forecasted a shift in low-carbon technologies could almost treble the demand on our trusted networks by 2050. In our network areas alone, electric vehicle charging and heat pump capacity could see exponential growth by 2030. It is the likely load expenditure required to keep pace with this expansion, which has informed the thinking behind our draft ED2 business plan.
Looking beyond ED2, out towards the end of the decade, depending on Ofgem determinations and level of uncertainty mechanisms then required, we expect the gross RAV of the distribution business to reach GBP 7 billion-GBP 8 billion, representing a CAGR of 7%-8%. We have provided a lot of detail this morning, so I'll pause to summarize. This investment plan will not only drive growth for the period to 2026, but also pave the way for SSE's businesses to grow substantially through the second half of the decade. The SSE of the early 2030s will be bigger, bolder, and better. We will have cemented our leadership position in the sector and established a significant international footprint. To put some specifics around that, we've today set a number of targets for 2031.
Firstly, to maintain a pipeline in excess of 15 GW, delivering more than 1 GW of net additions per annum. Secondly, targeting a fivefold increase in renewable output to 50 TWh per annum, underpinned by more than 16 GW of net renewables and low carbon flexible generation. Thirdly, reach a networks RAV of GBP 11 billion-GBP 13 billion net, equivalent to an 8%-9% growth CAGR. Finally, and importantly, meet our updated 1.5-degree science-based carbon targets. Taken together, all of this will drive significant acceleration in EBITDA and EPS as we deliver on these ambitious plans through the decade and maximize long-term shareholder value. We've made great progress in reshaping and refocusing the SSE group on delivering what's needed in the transition to net zero. We have a strong platform for growth with a highly desirable pipeline and tremendous opportunities ahead of us.
Today's update represents a substantial acceleration of our investment strategy, backed up by clear plans for delivery, funding, and a rebased dividend with attractive growth that will create long-term value for all of our stakeholders. We're maximizing our potential, and this investment accelerates our pathway to net zero through achievable 1.5-degree science-based carbon targets to 2030. We remain ambitious and will pursue further opportunities to promote the long-term success of the company. Having given deep and careful consideration to all the many strategic options available to us, we are absolutely confident that this is the optimal plan. At SSE, we are powering change, and we are creating value. Thank you.
The eyes of the world have been on Glasgow, looking for answers to the climate emergency, seeking to hold global warming to a 1.5-degree Celsius pathway. COP 26 drew in world figures, policymakers, industry leaders, and celebrities. SSE was there too, standing proudly alongside the U.K. government's presidency, supporting its aims to engage the world on climate action as the U.K.'s national clean energy champion. We engaged with a wide range of stakeholders about practical solutions, not because we think we have all the answers to climate change, but because, as the national clean energy champion, we have a huge role to play in the coming decades.
SSE, of course, is one of the U.K.'s own homegrown green energy champions on this event and throughout COP26 as our principal partner. I'd like to begin by looking at the work of the company as it is a great example of the U.K.'s clean energy transition in action. It's a model we want to see replicated again and again as we seek to decarbonize our power sector, not just here in the U.K., but across the globe.
By putting the best possible mix of renewables, networks, and other low carbon businesses to work on decarbonizing the energy sector, SSE is creating lasting shareholder and societal value. Our strategic focus aligns with governmental targets that are being adopted around the world, and we are expanding into overseas markets to make the most of the opportunities this presents. In the U.K. alone, SSE's renewables trajectory will have enabled over a quarter of the 40 GW offshore wind target by 2030. SSEN Transmission and SSEN Distribution will account for over 20% of the upcoming investment that is needed in Britain's electricity networks to decarbonize heat and transport. SSE Thermal will lead investment in the low carbon technologies that will provide the flexibility that is proving so critical to maintain U.K. system equilibrium in the transition to net zero.
These businesses have common capabilities in the development, construction, financing, and operation of world-class, highly technical electricity assets. Now, backed by an accelerated capital investment and expenditure plan for the five years to 2026, they have renewed impetus to pursue ambitious growth and carbon targets in the decade to 2031.
I mean, companies like SSE are really leading the way in terms of deploying offshore wind technology. I think that Dogger Bank is the largest offshore wind development in the world. This is a great testament to British skill, British entrepreneurship, and innovation. It's a fantastic thing to be a part of. Very pleased to sign my name. It was really good to see my signature there with so many other people celebrating what is an outstanding British achievement.
We are SSE, and we are powering change.
Thank you. Right. That's probably been quite a long session. What we thought we'd do now is just take a few minutes for a break so people can grab a coffee, or whatever they need, and then we'll be back to answer all of your questions. We'll see you very shortly.
Ladies and gentlemen, thank you for standing by. We will now begin the question-and-answer session. As a reminder, if you wish to ask a question, please press star one on your telephone and wait for your name to be announced. Please kindly mute any audio sources while asking a question. If you wish to cancel your request, please press the hash key. Once again, please press star and one if you wish to ask a question. The first question comes from the line of Ajay Patel from Goldman Sachs. Please ask your question. Your line is now open.
Good morning, and thanks a lot for the presentation this morning. I have a few questions if I may. Firstly, I was wondering on the sale disposal of the transmission and distribution assets, will you be keeping the gearing broadly in line with the regulatory assumptions? Or could it have a gearing structure that is more similar to SGN did, more closer to 85% gearing? In terms of the plan, you've highlighted that I think in previous presentations you had a funding model where you sold down to about a 40% ownership stake in your offshore wind projects, and then clearly the rest of the asset rotates. I'm just wondering how many gigawatts of asset rotation have you assumed in your plan, and what type of rotation valuations?
As in maybe a NPV to invested capital would be quite helpful here. Gross and net gigawatts on the renewable side, that'd be helpful. In terms of the plan, how much is allocated to securing pipeline for renewables over the plan? That'd be really helpful. Thank you.
Okay. Thanks, Ajay. Gregor, do you wanna take the disposal, and I'll do a bit on the plan? You can come back as well on anything else.
I'll look at it, yeah. Yeah, that's fine. Yeah, look, Ajay, good to speak to you this morning. Yeah, our assumptions are we'll be around the Ofgem gearing levels around 60%-65%. That's the planning assumption that we've got in our modeling at the moment.
Yeah, look, on the gigawatts and asset rotation, Ajay, obviously we're targeting over 1 GW net, and we talked about over 2 GW gross, basically. In terms of particularly the offshore or some of the assets where we would rather project finance, I think we'd be looking to retain between 40%-50%, but doing it on the basis that we can still get the project financing that we need. On allocation stuff to that pipeline, Gregor?
Yeah. Well, look, we said in the statement, and you've got the detail in the statement that, you know, there's about 35% of the spend in renewables, that's on the existing pipeline and 15% on the new pipeline. That is what we're kind of expecting. That's a kind of portion of the GBP 5 billion. That's all I would say at the moment. That's flexible. It depends partly on how quickly we move forward with some of our projects.
Sorry, if you don't mind one final follow-up. It's just, why 25% on the network? Is that just how you see the world in terms of your investment opportunities, and that can change over time? Just a justification would be really helpful. Thanks.
Yeah. Like, I think, you know, we're looking to bring in a minority partner that has limited operational and strategic influence. We think 25% is a good fit for probably a financial investor. Bear in mind, you know, the transmission business is, you know, a lot of new assets, which are ideally very good for pension funds on an annuity basis. The distribution business is at the heart of net zero. These are really attractive assets. 25% was kind of the right level and also met some of the requirements that we need for capital to be recycled in the business.
Bearing in mind, we're looking at balancing our overall CapEx more kind of in a 40/40/ 20 basis, whereas networks at the moment is accounting for 55% of our CapEx and renewables 25%. It's a combination of those factors.
Okay. Thank you very much.
Thank you.
Thank you. The next question comes from the line of Deepa Venkateswaran from Bernstein. Please ask your question. Your line is now open.
Thank you. That's Deepa Venkateswaran from Bernstein. I have a few questions. Firstly, on the disposals in the waterfall chart of that GBP 18 billion, could you just help understand what all goes in the disposals in there of roughly GBP 4.5 billion? It's the SGN stake sale, the 25% network sale. Is there anything else substantial like asset rotation of offshore wind or anything? Just because that number, the residual number after SGN is GBP 3.3 billion, that seems quite high for a 25% stake sale. I think my own estimate was maybe close to half or, you know, maybe GBP 1.8 billion or something. Maybe that's the first one.
Secondly, on the option to kind of stay integrated and not do a renewable spin-off, I think in the statement, you've talked about two things. One is that as a standalone company, you think you know large projects like Berwick Bank or Dogger Bank can't be funded and that there would be dis-synergies of I think GBP 95 million on an annual basis. I just wanted to check the basis for that because you know GE has announced it's a very large company splitting into three, and they come to I don't know $150 million-$200 million of dis-synergies. I just wonder how a small renewable spin-off could have such high dis-synergies.
Secondly, you know, you've got Ørsted building really large projects across the world, and they are a standalone company, and many of their debt issuances trade at lower yield than yours, although they have the same credit rating. Just wanted to understand, you know, what was the advice that was given to you, and how do you substantiate these differences versus Ørsted and GE? Thank you.
Okay. Fine. Thanks. Do you wanna do the disposals?
Yeah.
We'll do the-
Yeah.
separation chat?
Look, the disposals are the 25% minority interest SGN, which will come through in the period, the GBP 1.2 billion of proceeds. Also some non-core assets, which will include our 50% telecom stake and the waste-to-energy joint venture that we're doing in Slough. They will come through in the period. The developer profits in terms of offshore wind disposals and sell down, yeah, that will come through the profit line. The 65%, that'll be included in there.
Yeah. Look, on the separation, we are a company that's together at the moment, so obviously whatever we went through in terms of dis-synergies, they are whatever happens when you separate them, and Gregor will talk about the detail of that. There are obviously issues, a number of issues with that separation plan. One is the scale of businesses that you can take on. There are financing issues as well, that it's a less attractive financing structure. Plus you've got just some of the core dis-synergies around duplicated central and other costs. Overall, we were very clear that we've got the optimum plan we need for now.
As we said at the time, we'd done an exercise to go through the detail of what some of those numbers were, and we obviously put those out there for those that wanted them. Gregor, you might wanna comment in more detail.
We've got the PLC costs that you need to be duplicated. Actually, IT costs are pretty significant in this day and age. You get good synergies across the group. Procurement, HR, finance, all the usual costs you would get. In addition, you've got EPM, because you need two kinds of energy portfolio management functions in this market. You know, it's a volatile market. You need that sophistication. Then you've got additional financing costs that you would have coming through on an annual basis, just for the weaker nature of the credit of the businesses. I mean, you talk about Ørsted, but remember Ørsted is majority state-owned. I think people forget that when you look at their analysis.
On the kind of one-off costs, those are costs that we would have in terms of dealing with some of our debt that would require some kind of payments because of splitting the group. That that's kind of where we are on those costs. We've obviously done a lot of work on that internally, and we've had some professional work on helping us with that as well.
Okay, thank you.
Thank you.
Thank you. The next question comes from the line of Martin Young from Investec. Please ask your question. Your line is now open.
Yep, good morning to everybody. Hope everybody's staying well. I've got three questions, if I can please. The first one is around the big strategic picture that you've painted this morning. I think we all agree that there is huge opportunity both nationally and globally. Obviously you've set out your ambition to be a global player in offshore wind. You set out your national ambitions in networks. Given the scale of that global opportunity in offshore wind, and given the fact that you're kind of opening the door with a 25% sale in the network, is this not just a halfway house to full separation?
In a number of years when you've secured some projects in other jurisdictions on the offshore wind side of things, we're gonna be coming back and having a discussion about a full demerger of networks and renewables. Interested in your views there. The second question is around the presentation of net CapEx when you talk about networks. Is that you basically just taking 75% of gross CapEx, or is that gross CapEx less what you believe you are going to get in for the 25% disposals you've outlined this morning? The third question, which is hopefully an easy one, I did note that the interest rate has moved up very slightly. You have very low index-linked debt in your portfolio.
Just wondered what was behind that increase in the average rate in the first half of this year relative to the first half of last year, and indeed relative to the full year FY 2021. Thanks.
Yeah. Okay, great. Thanks, Martin. Yeah. I understand exactly the issue. I think on global offshore, I don't think there's a global renewables company out there today. The biggest one in the world is based in America, and only, as far as I can tell, it really focuses on solar and onshore wind. You know, the global renewables market is vast. We will be looking to enter selective geographies, and do that on that basis. We've set out a very clear plan for how we want to do that. Martin and his team are obviously working away in Denmark currently and other locations. We've got a fully fundable plan that we believe in. We see networks as being core to the future of the business. We see huge opportunities coming from the growth of those networks as well.
As Gregor said, as and when we do that disposal, we'll be looking more at financial players, and we'll be looking to maintain control and participate in the huge upside that we see coming out of networks. We're absolutely focused on the plan that we've got. We don't see it as a halfway house to full separation. Gregor?
Yeah, on your point on CapEx, it's 75% of gross CapEx. On the interest, it's kind of marginally up. It's, you know, it partly reflects, you know, some of our refinancing that we did and, you know, over a period of time, you know, that we'd expect the interest rates to slightly go up. The one point I'd make is on the index-linked side of things, SSE only has 3% of index-linked bonds, probably the lowest of all the utilities. We are highly levered to benefit from inflation. You know, where inflation is at the moment, I think that is beneficial. I think we're in a pretty good position in terms of our portfolio.
Okay, thank you.
Thanks.
Thank you. The next question comes from the line of Chris Laybutt from Morgan Stanley. Please ask your question. Your line is now open.
Good morning. Thank you. Thank you very much. My question is first of all, just on your funding package. You've announced today a package that includes an expanded asset rotation program, a reduction in the payout to equity, which is a slightly different approach to National Grid, in that you've decided not to gear up the balance sheet. Did you give consideration to increasing gearing as part of the package? I guess with a Baa1 credit rating, just some comments around how you arrived at the final package would be helpful. I guess the second question would be just some general comments on your EBITDA growth, which looks very strong in renewables. EPS growth is slightly lower at 5%-7%.
If you could give us just maybe a guide to where the stronger and weaker contributors are within the segments, that would be useful. Then just a very quick one on storage, which was very strong first half. If you could give us some sense as to what you're looking at for the full year for that segment, it'd be quite helpful. I guess a difficult question to answer, but is there any sense for some sustainability in the contribution from that asset going forward? Thank you.
Okay, great. Well, with current volatility, I suspect so, but we'll let Martin comment on the storage stuff. Just quickly, before Gregor dives into funding and any other comments he's got. On the EBITDA EPS growth, obviously, we've got very substantial growth in the RAV of the networks business as well in there. So what you've got here is a balance, Chris, of, you'll have stronger earnings growth in generation or renewables, specifically, or generation and renewables than you will get because we've got strong growth in the RAV base of those networks businesses. So they won't be generating or throwing off quite as much cash or generating quite as much profit as you might expect.
I think simplistically, that's how I look at it, and that's why we talk about the balance of good strong earnings growth, but also very strong asset growth as well. Gregor, look, funding and-
Yeah, yeah.
EBITDA growth.
To just add to that, I mean, it's something that we've been seeing for a number of years now that, you know, returns are coming down in networks, and you can see that equity, return on equity is coming down, almost halving in terms of the price control. That has an impact. We've got absolutely brilliant RAV growth, which is creating a lot of value. That is really positive. In terms of the funding package, it's a balance. You know, when we've talked to our shareholders, you know, they wanted us to have a balance of and reasonable levels of debt. They want us to have a strong investment-grade credit rating that allows us to have the flexibility to deal with the volatility that we have in the markets. We've worked through that.
I think this the package that we've put together gives a positive position. Clearly, we have to balance the dividend with growth, and we've got substantial growth coming through the business. The final thing I'd say is that, you know, having given you know the rating agencies a clear indication of our plans, it's good today to see Moody's you know affirm our rating is stable from negative outlook. That's a really positive thing for our business. I think we've got it. I think we've got the balance right. You know, we can see in a couple of years' time how we progress with our plans and where we are to consider whether we want to gear up.
Gearing up has consequences, I don't think that's the right thing for us to do at the moment.
I'd echo Gregor's comments on volatility. You know, Martin and all the businesses that he's got operate in volatile markets, but secondly, the scale of some of the individual projects we do means that we would prefer to have a strong balance sheet. You know, we need the scale of the business, and we need a strong solid balance sheet. We're obviously delighted that we've been able to deliver that as part of the package today. Anyway, volatility and storage, Martin.
Hi, morning, Chris. Yeah, I mean, essentially storage, we kind of follow a relatively standard kind of hedging methodology, where we just basically hedge the kind of summer/winter spread. There's obviously been a lot of spot volatility through the summer, so that created an opportunity for the assets in the first half. That will involve a reprofiling of some of the hedges in the second half. Effectively, a bit of value has essentially moved forward. Clearly, if through the winter we see a whole bunch of high spot volatility, that will clearly be a very big positive for the assets and for the business. I mean, obviously we're set and engineered to respond to those conditions.
Not only does it create quite a good revenue opportunity. I guess it provides very good defensive hedge qualities to the rest of the book, including the intermittent wind risk we obviously have. It clearly has its place in the portfolio. I think the second part of your question was, sorry, your question was, whether we expected that to repeat going forward. Don't know, but it strikes me that the market logically, there's less storage clearly in the market, and it goes back to the decision on Rough, which has received some commentary obviously over the last few months, given what's happened on prices. LNG competition seems a little bit more aggressive internationally, so that removes effectively a bit of storage from the systems.
Obviously the end of coal removes another bunch of energy storage at a point when the market is by definition a little bit more intermittent. You'd have thought that these assets would have a role to play. It is noticeable that the gas price has been moving around a little bit on wind speeds, and indeed CCGT demand that arises from those wind speed variations. Clearly gas storage has a role to play in our integrated energy system, and we're very pleased that we've got those assets.
Yeah. I think even longer term as well, Martin, the possibilities for hydrogen storage and things like that, I think, will play into those assets having an enduring value.
Absolutely.
Thank you very much.
Thanks, Chris.
Thank you. The next question comes from the line of Jenny Ping from Citi. Please ask your question, your line is now open.
Hi. Thank you. Just two clarification questions, please. Just on your 5%-7% earnings increase or CAGR over the period, can you clarify if that is post the minority sell down plus the farm down expected of offshore as well as the farm down gains? Then secondly, just going back to the 4.5 x net debt EBITDA target, can I also just clarify this is effectively excluding all of the offshore wind assets which you expect to farm down to 40%, as they'll be all project finance and off-balance sheet? And how do you treat the minorities of the ET and ED businesses here? Thanks.
Okay.
Yeah.
Thank you. Gregor, go on. Quite technical. I'll leave it to you.
The CAGR assumes with that we've sold down the minority interest and also farm downs. Any gains on the offshore wind development projects will come through the profit line, so that will be included in our EPS number. On your net debt to EBITDA, we will take the proportion of the debt. We've got, as you know, a detailed schedule on our website that details how we calculate that adjusted debt to EBITDA ratio. It takes the prudent position in taking into account our kind of earnings on an equity basis. That's how we would do it.
We do the same for the diverse businesses as well.
That's, I think there's one there maybe about the count T&D, the accounting for the 20%.
Sorry.
Oh, okay. Yeah. Sorry. Is it, Jenny, is that okay or any follow-ups?
Sorry, I'm not clear on the net debt EBITDA. I haven't seen what's on your website. Can you just walk me through that, if you don't mind?
Well, it's quite technical. Basically, the debt that the minority interests have, we wouldn't include in our adjusted net debt number. We take our share of the EBITDA number.
Just on the offshore wind, because they're all going to be project finance, presumably that's all off balance sheet?
That's right, yes.
Okay. Thank you.
Thank you.
Thank you. The next question comes from the line of James Brand from Deutsche Bank. Please ask your question, your line is now open.
Hi, good morning, and thank you for the presentation. I've got three questions. Firstly, on the guidance, power prices, obviously near term, but also medium-term power prices increased a lot in recent months, and also inflation expectations have increased a lot. Maybe you could just comment on your 2026 guidance, whether that reflects the current forward curve for both power and, I guess less importantly, inflation, or whether it reflects prices as they were, you know, a few months ago or earlier. That's the first question. Secondly, on the networks, the 7%-9% equity return you're saying you're expecting from your networks, I'm just really keen on understanding that bit better. So would that include totex, ODIs, and financing? Or is it just totex and ODIs? 'Cause sometimes companies show these metrics in different ways.
Maybe you could just help us understand a bit whether you expect to outperform much on totex and ODIs, 'cause I think you already have some outperformance on the, on the financing side, and 7%-9% doesn't seem to leave that much left over for totex and ODIs. The third question, as you mentioned, gas storage as being an area of investment potential for the future. A lot of people are talking about new salt caverns being needed for hydrogen. How soon could the future be? 'Cause it seems like, given the time it takes to build new storage, that might have to come to the agenda pretty quickly and probably before 2026, given the ambitions that are out there for hydrogen. Thank you very much.
Sure. Okay, great. I think they're two fine questions.
Right.
Martin, are you happy to do gas storage?
Yeah. Did you want me to say anything on power prices first?
Okay. I'll give it on the guidance, and then you can comment on that as well. Clearly, James, we've had, you know, we've seen prices move up, not quite as much at the back end of the curve. We will have some value benefit coming through there and there could be some inflation value. We take a point in time. I think we're reasonably prudent in our view. If the markets, you know, did move up a bit, and we have clearly higher inflation over a prolonged period of time, we will benefit. On the return on equity for the networks businesses, yeah, that's a target, remember, and it is a target that is post-tax nominal.
You have to inflate the cost of equity and then look at our performance. We're not getting into specific numbers because it'll be different for distribution, transmission. Distribution, clearly, we're putting our business plan into Ofgem on the December 1st, so we don't want to prejudice views on that. Yeah, we would expect some totex outperformance. We'd expect, you know, to kind of get some incentive outperformance as well. You know, over a period of time, we've managed to get some debt outperformance. It is a target and it is a range. You know, we'd want to work towards the top end of that range if we can, but that will be challenging.
Fine. Martin, any, well, comment. I'm not sure the power curve goes out to 2026. I've not seen too much trade in that period, but.
Yeah. Just probably that's exactly what I was gonna say. I mean, the power price is obviously probably halves to winter 2022 and then probably loses another roughly 1/3 on paper to winter 2023, and there's nothing much beyond that. And it's actually reasonably illiquid beyond, let's say summer 2023. Although positively, I mean, clearly gas prices have been pretty constructive, but actually positively for our exposures on power and carbon prices have obviously been very robust and are being driven by policy ambitions that, perhaps if we're discussing this a year ago, we may have had a bit less conviction about, but they seem pretty robust and pretty strong. It's not just kind of U.K. policy, kind of post-Brexit, its own U.K. emissions trading scheme.
It's what's happening in Europe, with its own carbon ambitions and CBAMs, et cetera. That's gonna be important for power prices going forward. In terms of hydrogen, I mean, I guess, for me, this is the real kind of big policy story movement over the last year. I mean, hydrogen was being talked about a year ago, but it's now being talked about with real conviction. Obviously, the government has made various announcements about its own ambitions through its net zero strategy, including kind of setting kind of 5 GW of hydrogen provision by 2030 and production targets as well. At the moment, it's a bit difficult to know exactly how all of that coordinates itself through, but it, I mean, it's clearly coming.
As you rightly point out, our assets are well placed to respond to the requirements of that transition, and we stand ready to do so. At the moment, we're probably a little bit more focused on the carbon capture story, which is obviously also going through its own policy frameworks, and actually happy to report is sticking to timelines, which I think is a real positive.
From a physical sense, Martin, obviously our gas storage assets are sat right in the middle of the Humber cluster in terms of between Humber and Teesside.
Absolutely.
Is that-
Great. Thanks a lot.
Thanks, James.
Thank you. The next question comes from the line of John Musk from RBC. Please ask your question. Your line is now open.
Yes. Good morning, everyone. Three questions, I think from me. One, a clarification, just going back to Deepa's question, which was looking at the GBP 4.5 billion of disposal proceeds. Then you tell us we have to take out GBP 1.2 billion for SGN. That would still leave, you know, GBP 3+ billion on the other disposals. Yeah, I would assume that the RAV at the time you're gonna dispose of those assets is gonna be in the GBP 9 billion level, and the GBP 3 billion would imply somewhere, or GBP 3+ billion would imply somewhere around GBP 13 billion in proceeds. That looks like quite a hefty premium to RAV that you're assuming on those disposals.
Just wanted to clarify if there's quite a chunky other disposal that we should be thinking about in there. You mentioned some items, but I'm just not sure how many millions of pounds we should ascribe to those. Secondly, sort of bigger picture, obviously, the calls for a full separation have been quite vocal from some shareholders. I assume you've discussed these new plans with all shareholders. Have you convinced some of those more vocal people that this is now the right way forward? Is there any discussions you can share from those? Slightly linked to that, only a small throwaway one at the end, did you consider cutting the dividend now? Why wait to 2023?
Obviously, you had a previous plan, but if it's something you need to do, should you be doing it sooner rather than later? Thank you.
Do you want to do the disposals?
Yeah.
Start with Gregor.
Yeah.
I'll do the other two.
Yeah, look, John, I'm not going to give you precise details, you guys are big enough and old enough to work out the numbers. Look, we've got telecoms business, and you can go back and refer to what we sold that for the previous 50%. We've got a waste-to-energy business, joint venture that we've, you know, we're building at the moment, and then we'll sell out. You can get the relative multiples from our previous transaction. You know, these will be a few hundred million . I'm not going into detail of that. You know, I think, you know, in most analysts' kind of sum-of-the-parts, you tend to underestimate the premium to RAV of these businesses.
You know, our transmission business is the fastest-growing transmission business in Europe. We can see a lot of opportunity there at the heart of, not my words, but a previous politician's words, the Saudi Arabia of renewables. There's huge opportunities there which financial and infrastructure investors are always keen to invest in, and our distribution business is the heart of net zero. I, you know, maybe it's your assumptions there. The one thing I'd say on disposals, our record speaks for itself. We've outperformed on all our disposal programs, and I expect to do that in this one as well.
Okay, thanks. In terms of our plan, as we said earlier, we announced in May that we were gonna have a significant update to the CapEx review. We trailed a number of things over the summer, you know, success of the disposals program and significant growth, more opportunities such as the acquisition of the business in Japan. We've seen a lot more ambition out of government, probably capped off with the 2035 target. Martin's referred to a lot of policy that's come out, including the policy that came out around COP, which, you know, in a more micro basis rather than the 1.5-degree global basis, is driving forward the UK's agenda.
On the back of that, we need scale, we need a strong balance sheet. We don't need to be distracted. The opportunities in front of us are enormous now. As we've talked about, we need reasonable financing, and we've given you that. Any sort of separation of the business would give significant financing issues. We also obviously had a lot of discussions with shareholders post the May results and all the way through the autumn as well to discuss all the things that we were doing to understand their views. We did get a range of views.
We, you know, continue to transform and pivot the business strongly into the net zero world, and, I think, have done that very well since we separated the retail business. Today, obviously we treat all shareholders the same. Today we've announced all of those numbers and all those plans. We obviously look forward to future engagement with all our shareholders, you know, over the coming weeks, and expect that to be positive, and we'll take their comments positively as well. In terms of the dividend, as Gregor has said, we had a package. We had a lot of things to achieve. We had to take advantage of the opportunities in front of us.
We have to deliver for society. We also have to deliver strong growth for shareholders over the long term. We wanted to maintain a strong credit rating, a strong balance sheet, so we could take advantage of the colossal opportunities like Berwick Bank that we have in front of us. This package, I think, delivers on all of those fronts strongly. We have no reason to change a dividend promise that we've made previously, and we'll maintain that promise. We also wanted to reflect going forward the opportunities for the group and the strong growth potential of the group. We've set a dividend at a level that we think is sensible. We've underpinned it with a growth promise which is aligned to the strong earnings potential of the group later on in the decade.
We've given people a very clear five-year view, which I think is far more of a view than you'll get from most companies about where that dividend's going. We've set clear and ambitious targets out to 2031 to demonstrate what we're also looking to target on a longer-term basis. I think on that basis, the dividend has been maintained and then set on a basis that's entirely consistent with hitting all the things we need to deliver value for shareholders and wider stakeholders as well.
That's great. Thank you very much.
Thank you.
Thank you. The next question comes from the line of Ahmed Farman from Jefferies. Please ask your question. Your line is now open.
Yes. Hi. Thank you for taking my questions. Just a few from my side. I'm just hoping if you could share with us a little bit more about the underlying assumptions for CapEx by technology behind the sort of new business plan and how do they compare with your sort of previous business plan assumptions. And if there are, you know, any sort of measures specifically you have taken to lock in the CapEx on future projects, given the commodity price assumptions are today. That would be my first question. My second question is, I think you show a chart, one of the charts, at least 10% return expectation for renewable investments. Could you talk a little bit about how that sort of evolved?
Where that, how does that compare with some of the projects you've delivered in the past? Sort of the underlying leverage assumptions behind that return calculation. Thank you.
Okay, that's great. The line wasn't that clear, but I think you were asking about technology and the underlying assumptions of the business plan, and particularly how they may be impacted by either, you know, probably commodity and/or inflation generally. So look, we're obviously driving forward with technology, Dogger Bank's installing the largest wind turbines in the world. When we get to Berwick Bank, we'll probably be looking at bigger and more innovative turbine technology. Again, in terms of that business plan, as we've said, around 60% of it is already committed in terms of CapEx. So we've still got more to go. I think generally on those investments, we'll obviously have to price them up based on the commodity price at the time. You know, this may be a short-term bubble.
It may be, you know, a long-term bull run in terms of underlying commodity and wage price inflation. I think we're gonna be in no different position from anybody else there. I think the only difference that we have as a company is that we've got an amazing set of options already baked in terms of seabed and planning and land options and things of that nature, which support, you know, those developments, whether that be offshore wind, portfolio of onshore wind, things like Coire Glas, et cetera. I think we can definitely be competitive. We've proven that we can win auctions before, and we can do so on an accretive basis.
Looking at something like Dogger and/or Seagreen, we've obviously sold on those assets post the auction wins at significant premiums and generated value for shareholders on the back of that. 60% of it's kind of locked in and we know what we're doing. The other 40%, we're very confident in the quality of the underlying options that we have, and we're also confident that the market will be able to bear the prices from that inflation. I think Martin may want a quick comment as well before we hit Gregor on the returns.
Yeah, thanks, Alistair . I mean, obviously, projects have ups and downs all the time. Yes, a case of metal prices up, other wage costs may be up. But obviously indexation is probably higher and FX probably looks better from a U.K. perspective. We've also got very strong relationships with OEMs. There's really good kind of history with them, but also obviously a very ambitious plan going forward, which helps us create an economy of scale there. Ultimately, if you think about offshore wind, even with some of these commodity price movements, it still looks very competitively cheap. There is scope clearly for that to be passed through in kind of auction processes.
Okay. I think on your 10%, I think you were referring to offshore wind. You know, that's a levered return. We would assume for the generation aspect of it is gonna be 60%-65% levered. There's a transmission element as well, which tends to be geared about 90%, but that then gets sold off. If we look at returns, you know, for our existing projects and what we're building at the moment, Beatrice obviously is well above that, significantly above that. I'm not gonna quote you a number, but it's very attractive in terms of the returns we made there. That's partly because of the way we structured that and how we've taken that forward.
You know, that's been a very good project, one of the earlier projects. In terms of Dogger Bank, you know, we've said we expect to be in excess of 10% on Dogger Bank A and B, and we'll announce, you know, financial close of C later this year. We'd expect them all to be well above 10%. Seagreen, because it doesn't have a CfD contract, is getting towards 10%. It depends on your assumptions on power price and the power curve. You'd probably say today, if the power curve is where it is and stays where it is, it probably just gets over that 10%.
It is a target, you know, but you know the discipline that SSE has, we tend to kind of overachieve and outperform our targets.
Thank you.
Okay. Thank you.
Thank you. The next question comes from the line of Dominic Nash from Barclays. Please ask your question. Your line is now open.
Yes, good morning. A couple of questions from me, please. Firstly, just following up from an earlier question on capital structure, and your position as to whether or not you're gonna do a potential split or not, as one or two of your shareholders might be agitating for. Can you just confirm that your decision today is your final decision, is unequivocal out to 2026, and we should see from the work today that there's gonna be no option for you to sort of change your mind in the next sort of years. The second question is on the GBP 0.60 dividend. Could you give us some color on why GBP 0.60?
Is there a risk that it neither satisfies the income investors and neither satisfies the growth investors, or do you think that that is the optimum number and right? The final question, I think, is probably following up from, I think Jenny's question earlier, on your sale of your 25% stake. Can you just tell us how will you be accounting for that post the sale? Will that be fully consolidated or proportionally consolidated? And if fully consolidated, the CapEx and the net debt numbers, will they be the whole numbers, and how do they get reflected in your net debt EBITDA calculations? Would it be consistent with your other JVs and funding? What's the scale for EPS dilution?
Which I think was probably what Jenny was questioning on the growth rate, which I believe you said would be a 5%-7% growth rate after the disposal of the 25%. Is that correct? Thank you.
Yeah. Okay. Look, I'll let Gregor confirm all the things you've asked at the end, but I think you are correct. Just, yeah, the plan today is absolutely the optimal plan. The board are very clear that that's what we wanna do, and that's what we're gonna go forward with. There is no other plan out there. We're committed to that, and that's what we're gonna go and deliver. I think in delivering that'll give us the base that we need to deliver even more going forward, and I think that's important as well. Gregor?
You know, Dominic, I mean, the dividend, I think we've answered the dividend. I mean, it's a balancing act, and we've gotta look at the significant growth. We are putting in GBP 1 billion additional a year into our CapEx plan, so you know, when we've talked to shareholders, our shareholders understand there's a balance there. You know, we think what we've provided today is a good balance for moving forward and growing the dividend. You know, you can put numbers into a model and play around with them, and you can get a number around that. I think this is a number that we've worked on for a number of months with the CapEx program, and looking at the sensitivities around the business and that's what we've come out with.
I don't know whether we've got too much more detail there. On the networks business, we will proportionally consolidate. You know, that will come out as a minority interest line in the numbers. We will take out on our adjusted debt number the debt associated with the minority interest, as you would expect, but we wouldn't recognize the earnings either, which is consistent with what we do with other joint ventures. Then on EPS, yes, it's after the disposal of the 25% stake. You know, the EPS dilution from that stake, I think from memory is around 6p or 7p.
That's the kind of the relativity of that.
Thank you very much.
Thanks, Dominic.
Thank you. The next question comes from the line of Mark Freshney from Credit Suisse. Please ask your question. Your line is now open.
Hello. Thank you for taking my questions. So firstly, on the GBP 12.5 billion, just to be clear, that doesn't include the partner's share of CapEx and networks, right? The 25% that you'll divest. You know, their share of the CapEx and RAV growth, it doesn't. You know, it's not reflected in that GBP 12.5 billion. Secondly, on the use of off-balance sheet debt, I think clearly we've got the numbers for Seagreen and Dogger and Beatrice. But in terms of the quantum of off-balance sheet debt that you'll be using, which I guess we would need to add to the CapEx to get a true picture of what you're investing, could you give us some color on that? Finally, just on the 25% scrip cap, how are you intending to exercise that?
Would that be, undertaking an on-market share buyback, or would it be through other means? Thank you.
Okay. Well, even I can confirm the GBP 12.5 billion excludes the 25% that is being paid for by the assumed new owner on the assumed sale or potential sale of the business. Obviously the overall CapEx would be higher if we did not sell those businesses down. I'll confirm that. Then the off-balance sheet, we might have to go and think about that one. Anyway, Gregor.
Yeah. I think your question, off-balance sheet, is it kind of impacting on the ratings, and how does all that play out? You gotta remember, you know, with the disposal of SGN, actually there's quite a lot of off-balance sheet finance that comes off. Our percentage of off-balance sheet funding comes down. If you look at those projects and add the gross spend, you know, clearly we'll get significant additional CapEx, but we're talking about net appropriate to SSE. You know, the offshore wind projects are 40%, so we pick up 40% of that through our investment. We treat the investment
It's an equity investment, not a CapEx investment, and that's how we account for it. I don't wanna get into gross and net and detailed numbers, but we can take that offline if you need a bit more detail.
The scrip?
We'll manage the scrip through a buyback to keep it at the same level. I think that's probably the easiest way, but that's what we're proposing to do.
Okay. When would you do the buyback after the final? You'd look at what it's been for the full year? 'Cause I think there's some-
Yes.
nuances around exactly when you would do it and
Yeah. We do it after final because interim is, you know, it's a smaller proportion of the overall dividend. We do it after final.
Okay. Thank you.
Thanks, Mark.
Thank you. The next question comes from the line of Sam Arie from UBS. Please ask your question. Your line is now open.
Oh, hi. Thank you. Good morning, everybody, and thanks for a great presentation and very helpful questions today. I've got one more question on sort of the big picture and then maybe one on detail that we haven't touched on yet. On the big picture, you used the phrase a few times that this is a fully funded plan. When I heard that, I sort of understood you to be saying, you know, there wouldn't be any question through the plan period of needing to raise additional equity. I just wanted to give you a chance to confirm for me that that's right.
I suppose, just help us understand how you thought about the trade-off between funding this very, very strong growth plan that you have by selling down stakes in the networks versus maybe by raising equity, 'cause that could've been an option, and others have pursued that route. I don't mean to challenge what you're setting out today, just wondering how you thought about that trade-off. That's my big picture question. If there's time for a little detail, I just did pick up one of your charts that shows a decent contribution from the abated gas generation, just in a few short years' time.
I guess that might be a question for Martin, but I wondered if you're able to share any of the economics around, you know, abated gas and kind of how that works in terms of, you know, carbon. You know, do you have to pay. Do you get the carbon certificate back on abated gas? Or what's the economics of the abated gas business that you look to be getting into very quickly from here? Those are my questions. Thank you.
Okay. Big picture, it is fully funded. I can't remember the slide in there that Gregor showed, but with the GBP 18 billion basically in the breakdown. We just felt it was important given other presentations other companies have made, where there were some questions emerged after the presentations about how that was funded. We thought that was important. Ultimately, I think in trying to balance our CapEx and what we do with our balance sheet, we decided a disposal of networks and doing things that were in our control, where we're not at the behest of the market to do anything, was the right way to go. It's always, I think, good to have strong organic plans.
That's why we went for the disposal rather than anything else.
Yeah. Also to probably rebalance that CapEx makeup, 'cause the network spend is increasing significantly, and therefore, we're gonna be out of sync between renewables and networks. There's a balance of that and taking value, you know, at, like, a point in time where, you know, premiums are rather high. Why wouldn't you take some value there?
Yeah. Look, Gregor obviously has got a slide there generally on returns and what we'd expect overall on returns. But Martin may wanna comment more on the structures. Obviously, we're working through the details with government at the moment.
Yeah. Well,
Oh.
I'll just say on the EBITDA, there isn't a significant amount of EBITDA coming through from any of the kind of carbon capture, hydrogen kind of generation because it's the CapEx starts later in the kind of period. So you don't get the earnings coming through till later in the next period. Martin will comment on the kind of mechanics of the contractual arrangements with government.
Hi. I mean, essentially, I mean, this is all kind of going through consultations at the moment. I mean, the government's obviously in its process with the clusters, of which the East Coast Cluster and HyNet North West, the Acorn Cluster at the moment is reserved. The Acorn Cluster contains Peterhead. The East Coast Cluster contains Keadby. So the notion that they're discussing with players at the moment is effectively a dispatchable power agreement. And as I say, this isn't all confirmed, but we think the direction of travel is it's probably a private contract. There's probably a payment for availability and performance, and there'll be a mechanism to ensure priority dispatch for abated plants over unabated plant, probably through some top-up payments, which compensates for any short-run marginal cost disadvantage. Then the T&S fee will be just passed through.
Again, discussion as well on term of that, but 15 years is the number we've heard a bit and is obviously consistent with other contracts administered by the LCCC. I guess, critically, if all of that comes together, then these assets will operate in the markets in the normal way, in the merit order. The process is that the clusters are in their own discussions and negotiations. Once that completes, then the power stations available will also get in their own discussions. This is a long way from being finalized, and what I've just outlined is a direction of travel and understanding rather than a comprehensive, this is the final answer.
Fascinating. I think we look forward to hearing more about that, and it's groundbreaking stuff. Thanks, Martin.
Okay. Probably down to the last one or two questionnaires if we can, 'cause we're starting to run out of time. If there are any more, we'll try and take them quickly.
Thank you. We have next question from Bartłomiej Kubicki from Société Générale. Please ask your question. Your line is now open.
Hey, good morning. It's Bartłomiej Kubicki. Thank you for taking my questions. Actually, it's three issues I would like to discuss. The first one is a follow-up on whatever we discussed before, i.e., your asset disposal. You are disposing of premium assets, so I guess you are expecting premium valuation. What if the premium valuation doesn't materialize? Meaning what is your alternative plan for that? Cut on CapEx, capital increase, gearing up, whatever you can imagine. What's your alternative plan? Secondly, on this 4 GW of renewables addition in the next four and a half years. Obviously, this is Dogger Bank, Seagreen, and then Viking.
Could you actually repeat or elaborate again what are the other projects you are including in the plan, and whether they are conditional on CfDs or you are willing to go merchant, for instance, given the fact where the power prices are right now? Lastly, on the above 10% return, equity return on your offshore wind, if we can actually compare apples with apples and if you can give us a spread over your WACC you are assuming in those calculations. Thank you.
Okay. Look, on the disposals, I don't think anybody recently has struggled to dispose of any U.K. regulated assets. That probably has persisted for the last 20+ years . I think we remain pretty confident that's the case. If we have to come up with a plan B, then we'll do so. We haven't spent a lot of time on it, and I wouldn't want to have idle speculation about something that I don't think is gonna be needed at this point in time. We remain confident that we'll dispose of those businesses as and when we want to. On the renewables bit, I think as we've said, 60% of the CapEx is committed. There are a variety of projects you've got there. Martin went through them in some detail .
He'll probably end up slightly repeating himself, but he can run through some of the things that we've got. There may be some substitution depending on exact timing, and exact cutoff. If you wanted to cut things off in five years' time, we might have bought slightly more or slightly less of certain assets. Martin, maybe you do that, and then Gregor can go to the WACC calculation or spread.
Yeah. I mean, we've rattled through this a bit, but I mean, obviously you've got Dogger Bank A, B, and C, Seagreen. Then you've got Seagreen 1A, Arklow and Viking. On top of that, there's options on the onshore pipeline. We talked about our bid in terms of Thor in Denmark. Obviously we don't know the outcome of that. Then there's other things that we are kind of looking at from a development angle as well. We're pretty confident about that number. Is that what you're looking for?
I think so, Martin. Yeah.
Yeah, yeah.
Yeah.
Yeah.
You wanna go CfD as well. Yes.
Sorry, we didn't quite catch it. Extension, and we've got Seagreen 1A, which is an extension to the current one, and then we've got Berwick Bank, which some people may view as a Seagreen extension 'cause it's kinda next door.
I mean, sorry, my question is here, whether you would like to see your risk appetite right now and whether you will be willing to go merchant with those projects as well. I mean, Seagreen extension or onshore wind or whether this is conditional on NS CfD options.
We'll make that decision at the right time. We've obviously. We're merchant at 58% of Seagreen at the moment. I think we've got a range of options as to how we try and mitigate risk on it. Martin, you may wanna comment on the detail work you and your teams are doing.
No. That's absolutely right. Clearly, there's a. Sorry, can you hear me okay?
Yeah.
There's an auction process next year. Obviously, we are looking to see whether we can compete successfully in that. We'll review at the end of that process whatever we need to do. I mean, just in terms of merchant exposures for wind, probably I'd kick myself if I didn't point out that the flexibility of the rest of our portfolio gives us some cover against some of the risks that other people might face, which is obviously an advantage to our overall portfolio.
Okay. Gregor.
On returns, I mean, I'll give you a kind of post-tax nominal type return. I think it's easier just to give you that because, again, you can work it back and do the math. It's around 7% or 8%, that type of range that we'd be looking at in post-tax nominal for offshore wind.
In terms of IRR spread?
Well, I've given you. I'm not gonna give you the spread because you know, you've put in your models for WACC, so everyone's got different WACC numbers. Yeah.
You can all tell us your WACCs, and we can all tell you whether we think we're materially different from your consensus or not.
Okay. Thank you.
I made it easier for you, Bartłomiej. I gave you the number.
Yeah.
Yeah.
There's nothing easier than that.
All right. I mean, let's discuss it later.
Okay.
Okay. Thank you. Cheers.
Thank you. Right, last question, I'm afraid, 'cause I think, we'll be running out of steam otherwise.
Okay. Thanks a lot. The last question comes from the line of Verity Mitchell from HSBC. Please ask your question. Your line is now open.
Morning, everybody. I got the last question. Yeah, this question is just back to dividends. You've explained a lot about your dividend policy, but you're the only company with regulated assets that's not got an inflation-linked dividend. If you could just talk through why you decided to go for absolute 5% growth rather than what you've done before, which is inflation-linked. Thank you.
We're confidently expecting that dividend of at least 5% will be higher than inflation. As we've said, it's gonna be at least and that's just the benefit of owning SSE and having an attractive mix of regulated and market-related businesses which are tucked into areas of such high growth at the moment. I think also with our businesses, they are fairly unique in the sense that they've got so much growth in them compared to many other businesses at the moment. Gregor?
Yeah, no, I think you've answered it. You know, I think it's also the mix of the business, you know. It'd be 40% renewables, 40% networks, and 20% other technology, including thermal. It takes that balance, and it gives a bit more certainty to shareholders in terms of what that growth profile will look like, at least 5% growth, which I think will then be able to kind of map out in the models a bit more firmer than maybe an inflation-based model, which is becoming maybe a bit less kind of the focus. But you know what, as I said earlier, we have less index-linked debt as well, so that gives a bit more flexibility as well, over and above inflation.
Great. Thanks.
Thanks , Verity .
Okay. Look, thank you. Apologies if there are more people with questions. If you come through to the IR team, we'll definitely be looking to arrange calls. We'll have an extensive shareholder engagement and indeed analyst engagement program going on over the next couple of weeks, and we'll obviously look forward to seeing you and hearing from you. If there are any specific questions as well, obviously the team can try and answer some of those on email as well. Really appreciate you all giving us your time this morning. I know it's been a long one, and there's a lot to digest. We look forward to continuing to set out the benefits of our new and bold net acceleration plan for net zero.
Thank you very much, and look forward to seeing and speaking to you over the coming couple of weeks.
Okay. Thank you.
Thank you. This concludes today's conference call. Thank you for participating. You may now all disconnect.