Good morning, everyone!
Good morning, and welcome to Hydro's Capital Markets Day 2023. My name is Martine Rambøl Hagen, and together with my colleagues, Frida Rongve Jacobsen, Elizaveta Boyadzhieva, and Camilla Gjerde, we are responsible for investor relations in Hydro. We are very happy to see so many here together with us today, and also welcome to everyone following us through the webcast. The headline for this year's Capital Markets Day is Pioneering the Green Aluminium Transition, Powered by Renewable Energy, and that, together with our strategic direction towards 2030, is gonna be the key topics for today's presentations. Before we start, safety first. If the fire alarm goes off today, I kindly ask you to find a way to the nearest exit.
You should find that to your left, outside of this room, to your left, next to the staircase, or alternatively, also to the right into the neighboring building. Exit should be marked with green signs. And then also, I would like to draw your attention to the cautionary note mentioned here behind me, related to the forward-looking statements that we have in the presentation that you should see on the screen, but also in the booklets and as has been published. And then let's move over to the agenda for the day. So we will start off with a presentation by our President and CEO, Hilde Merete Aasheim, who will take you through our provide insights into Hydro's strategic direction towards 2030.
Following that, our EVP of Corporate Development, Trond Olaf Christophersen, will present how Hydro is planning to take this towards the market. Then we will have a Q&A session, followed by a short break, and then we start again at 10:40 A.M., with all the business areas presenting how they are planning to step up growth to deliver on the new strategic direction towards 2030. We will then have our EVP of Extrusions, Pål Warton, up on stage, EVP of Aluminium Metal, Eivind Kallevik, up on stage, EVP of Bauxite and Alumina, John Thuestad, up on stage, as well as our EVP of Energy, Arvid Moss. And then we will have another Q&A with all the EVPs up on stage, followed by a lunch, and the lunch will be served right outside this room, and I hope you all will join us for that.
And then we will meet up again at 1:00 P.M., and our CEO, CFO, Pål Kildemo, will present the financial priorities, and then Hilde will wrap it all up in the end, followed by the last Q&A of the day. And just as a reminder, during the Q&As we have throughout the presentation and in the end, it will only be possible to ask questions from the physical audience, so not digitally. But we will have roundtables, both today and tomorrow, where it's also an option to join virtually and ask questions directly. So at 2:15 P.M. today, we will have a roundtable at the, on sustainability, and at 3:15 P.M., we will have a roundtable on finance. And with that, I would very much like to welcome up on stage our CEO and President, Hilde Merete Aasheim. Thank you.
Thank you, Martine, and good morning, and welcome from me as well. And thank you for joining Hydro's Capital Markets Day 2023. I'm very happy to see so many people joining us here in Oslo. That's the first time for a couple of years that we have been able to gather such a physical arena. But I would also like to welcome all the people following us on webcast. As usual, let me begin with what is the most important in Hydro, that is the health and safety of our people. As an employer, we need to do all we can to ensure that Hydro is a safe place to work, and that our people leave their shifts as good as when they arrived in the morning.
We will simply not be in business in the future if we cannot provide a safe working environment, nor will we be able to attract and retain the best people. October was a huge setback for us this year when we experienced two fatalities inside our fences. Two young men working for Hydro did not come home to their loved ones. These fatalities are a stark reminder that safety has to be on the top of the agenda for our own employees, but also for the contractors working for us. My experience for working near four decades, in the industry is that safety record of an organization tells you a lot about the culture and the quality of the organization. Having safe operations, being in control, and having stable operation allows us to focus on continuous improvement, to pursue new opportunities, and to execute on our strategic objectives.
Hence, safety is fundamental for releasing the full potential of a company and to succeed in creating shareholder value. In Hydro, Hydro safety performance has continued in its improvement the past years, which is shown on this graph with low incident rates, both in terms of total recordable and also high risk incidents. Our target is zero, and the tragic events in October reminds us that we can never rest in our efforts to make this a reality. Then three years ago, we launched the Hydro 2025 strategy, setting a forceful agenda towards 2025. Our ambition was to develop a more robust, higher earnings, and more sustainable company, strengthening our position in low carbon aluminum and growing in recycling and in new energy.
The backbone of this strategy was to seize opportunities where our capabilities match the mega trends, while also setting a forceful agenda for reaching podium positions in all business areas. Let me do an inventory check on how we have delivered on this strategy. Over the last three years, I would say that we have strengthened our position through delivering on our improvement programs, improving operational excellence, reducing fixed costs, as well as savings from procurement initiatives. We set a target of NOK 8.5 billion for 2025 back in 2020, and we have already delivered above this as of 2023. Secondly, we have pursued market and customer-driven growth opportunities, including developing the greener premiums. We set a target to deliver NOK 2.5 billion by 2025, and also here we are ahead.
Our estimate for 2023 is NOK 2.9 billion, primarily driven by including now Hydro nergy commercial improvements in the program. I have to say that I'm very proud of these results, and at this meeting, I would like to applaud the organization in Hydro, in the sense that we continuously work every day to see what we can do better the next day, and the improvement programs and the commercial initiatives is part of that. I'm also pleased to report that every business area is now in a podium position and in a better shape than in 2020. This is illustrated by the cost curve behind me for the upstream part. But also in Extrusion, we have closed the gap compared to peers when compared the EBITDA per ton in Norwegian kroner. I'm also pleased to see the energy results.
We have improved the earnings, in energy, with an EBITDA uplift over the last years of more than NOK 2 billion. Higher prices, but strong operational performance, a robust sourcing of strategy, as well as commercial contributions from the energy market organization. Working on continuous improvements gets you to a certain level. To make large shift to profitability over the cycle, reallocating of capital has been essential. As some of you would remember that in 2020, we set a target to deliver 10% ROACE over the cycle. Our rolling business, as well as our long position in alumina, did not add to our overall profitability target. On the other hand, both Extrusions and recycling have seen strong returns with attractive opportunities for further profitable growth.
Capital has therefore been reallocated into these two growth areas. But securing competitively priced renewable energy for our portfolio is also key to our podium position when it comes to cost, our low carbon aluminum position, as well as our further decarbonization. An important part of the 2025 strategy was therefore to grow in renewable energy, and we set up Rein as a, as an active developer of renewable energy. When we announced Hydro Rein, we were clear about our intention to do this capital light. Just a few weeks ago, I was very happy to announce that we finalized the capitalization by entering into the joint venture with Macquarie Asset Management, setting the stage for an exciting future for profitable growth for Hydro Rein. Sustainability has also been a key part of Hydro's 2025 strategy, lifting profitability, driving sustainability.
Recognizing rising expectations, we set ambitious targets for CO₂ reduction, for environmental impact, and for social responsibility. We are well on track to achieving a 10% CO₂ reduction by 2025, as well as a 30% reduction by 2030. A development primarily driven by the fuel switch to gas from oil and the transition to electrical boilers replacing coal in Alunorte. And I'm happy to confirm that the FSRU, the boat bringing gas to Pará and Alunorte, will arrive at the end of this year. In 2020, we set an ambition to be carbon free by 2050. Here, we are pursuing a number of initiatives, the most important being to develop technology to get the carbon out of the electrolysis process. Two technology paths are being pursued: HalZero for new capacity and carbon capture and storage for existing smelters.
Also here, we are on track to deliver on a detailed roadmap to demonstrate these technologies at an industrial scale pilot before 2030. On the environmental side, we are delivering on our 1:1 rehabilitation target of reforestation in Paragominas. Two years after we take down the forest to get to the bauxite, we put in seed in the ground to reforest the area that we have mined. We are also working to achieve no net loss of biodiversity on new mine expansions, meaning that we should set back the area with no net loss when we are done with the mining area. Our goal is also to eliminate landfill of recoverable waste by 2040. That is also progressing, with annual milestone and midterm targets guiding steady execution.
When it comes to our social ambitions, we have a number of initiatives in the local communities in where we operate. Our ambition is to be a good neighbor and a positive force in the local communities in where we operate. Our community surveys show continuously good improvement. In 2023, we started to implement our Just Transition framework. Supporting and respecting human rights is at the core of this framework, so is education. We have progressed well on our education goal, targeting to upskill 500,000 people by 2030, compared to 2020, through community programs and partnership. As of 2023, more than 180,000 people have benefited from education and training programs supported by Hydro.
In 2020, we set out to drive long-term shareholder value by stabilizing our earnings profile and resilience through ambitious improvement programs and portfolio restructuring, increasing our share of earnings from downstream and recycling, lowering our commodity product exposure, as well as increasing our premium products, including green premiums. We have delivered on this by strengthening the non-LME of our aluminum earnings, with a more robust earnings coming from extrusion, higher share of earnings from recycling, and through growing our greener volumes and premiums. In addition, the expected level of earnings from energy has significantly driven by better prices and commercial improvements. But we are still cyclically exposed, but at a higher level of profitability, and this we experience now.
This means that we can continue to focus on the long-term positioning of the company, while at the same time, as we are doing today, handling the short-term challenges in a weaker market. That is a good sign of resilience. We are not in a crisis when the market is low. We are continuing to position the company. Historically, we have had 37% of our earnings from downstream and energy. In the last twelve months, we had 46%, and we expect to grow this further, including the greener contribution from our upstream sales volumes. What we have done in the last years have also resulted in total shareholder returns, significantly outperforming our peer range, and the ability to return over NOK 30 billion to shareholders since 2020. Then, let's put the focus on towards 2030.
The world around us has indeed changed since 2020. The geopolitical tension we are witnesses for some time have intensified further. The Russian invasion of Ukraine, as well as the more visible rivalry between U.S. and China, are affecting all parts of the economy, challenging the status quo, which has defined the global economy since the 1990s. At the same time, the climate crisis is becoming increasingly visible, and so is climate action. Back in 2019, the E.U. was the uncontested global climate leader, with the other big economies lagging behind. Today, the U.S. and China have really stepped up their ambitions to contribute to combating climate change, on the one hand, but also to secure positions in the emerging opportunities for new growth and re-industrialization stemming from the green transition, on the other.
With a strong focus on supply chains, reshoring, and strategic autonomy, geopolitics and climate actions are slowly converging. For aluminum, this has had a profound impact. First, through a strong pull in the market for more aluminum, supporting the green transition in segments like automotive, building and construction, and infrastructure supporting the energy shift, but also through a push from politics and regulatory priorities. Security of supply is back on the agenda, with strategic autonomy as a hot topic. And on that note, just two weeks ago, aluminum was included on the EU's list of critical raw materials, underlying the strategic importance of aluminum as a critical material in the green shift. But producing critical materials, like aluminum, comes with challenges. While steel and aluminum have built the modern world. These resources generate nearly 15% of the carbon emissions that threaten the world.
This leaves us with difficult dilemmas. The world needs more aluminum to solve the climate challenge, but at the same time, the industry is part of the problem, with high carbon content in the energy source, as well as from the production processes, but also the impact on sensitive lands, biodiversity, and traditional communities. For aluminum's future to be as meaningful as its history, aluminum needs to change. In Hydro, we are committed to drive this change, paving the way for the green transition of our industry, but also every industry relying on aluminum. This is a bold statement, but I firmly believe if any company is capable of doing this, it is Hydro. Because we, in Hydro, we have a unique position to succeed in this new reality. We possess cutting-edge material and aluminum competence, from bauxite to extruded components, all within the same company.
We are already the market leader for low-carbon aluminum, with a concrete roadmap to zero. We have a unique position with captive renewable energy resources and competence to operate and develop new capacity. You have seen we are well positioned on the cost curve, and we are already the preferred supplier and sustainability partner on our customers' path to zero, with an integrated value chain enabling traceability all under one roof. With this, as I say, the same smell in the bakery under the one roof. Finally, we are also well positioned in key markets in the EU and in North America. While we are currently ahead, we must intensify our efforts to maintain our leadership, leveraging our position to change the aluminum game and unlock the full potential of aluminum as such, the market, as well as our unique position.
We simply need to shift gears. With that in mind, we have defined a strategic direction for 2030, focusing on four key priorities, shifting the gear to capture opportunities in this new reality. First of all, we will step up our growth investments in recycling and extrusions to capture the market opportunities emerging from the green transition. Similarly, we will step up our ambition in renewable power generation, ensuring the development of renewable energy for the aluminum value chain at an affordable cost, all while delivering attractive returns. We will continue our forceful execution on our decarbonization of technology roadmap, but also to step up our contribution to halt and reverse nature loss and support a just transition. Finally, we will utilize our position to take the lead, shaping the market for greener aluminum in partnership with customers. This is not a revolution.
These are natural next steps for Hydro, building on the foundation of the 2025 strategy, leveraging our entire value chain into supporting one common strategic ambition to pioneer the green aluminum transition, powered by, fueled by renewable energy, simply changing the game for aluminum. Let's have a closer look at these four steps. The green transition is creating unforeseen market opportunities that were not apparent just a few years ago. One example is the transition towards electrical mobility, representing comprehensive transformation of the entire automotive supply chain, component for component. The new value chain is being established right now, representing a significant shift in our market and industry, with a window of opportunity that is open now. To seize these unique value creation opportunities, we aim to step up profitable growth in extrusions.
Over the last years, Extrusion has strengthened its profitability by providing advanced solutions to high growth, non-commoditized segments, leveraging innovation and solution offerings. Extrusion is already on a solid path toward delivering on NOK 8 billion in 2025 in a normalized market. Towards 2030, we are aiming even higher. With new presses and growing our capacity and capabilities in fabrication, in value-added services, and recycling across our global portfolio, we are aiming for capturing new market opportunities through segmentation and greener offerings, as well as increasing our overall market share. Depending on continued underlying market growth and capital growth for investments, Hydro Extrusions' ambition is to deliver an EBITDA in the range between NOK 10 billion to NOK 12 billion in 2030. Similar shifts are apparent in recycling.
With a growing demand for low-carbon recycled products, we see an exciting potential for profitable growth. Here we will step up our recycling portfolio by on what we have done in the past years. Where we already in 2023 are close to have achieved our target in terms of installed capacity to double the use of post-consumer scrap by 2025, compared to 2020. Towards 2030, we are aiming even higher. And to put it in numbers, we aim to recycle post-consumer scrap in the range of 850,000-1,200,000 tons in 2030, compared to our current target of 520,000-670,000 tons in 2025. This represents an EBITDA ambition towards 2030 from recycling in Hydro in the range of NOK 5-8 billion.
Investments will include both expansions of new recycling facilities, we just opened a new facility in the U.S. in Cassopolis last week, as well as upgrade of existing plants. Investments will also include strengthening our position in scrap sourcing and advanced sorting capabilities. And as some of you will know, in 2023, we diversified our portfolio by adding secondary foundry alloys through the acquisition of Alumetal, as well as the investment of HyForge in Rackwitz. It's important to have multiple products outlets, enabling us to utilize more post-consumer scrap, optimize the use of different fractions, and deliver recycled products to a growing market for recycled aluminum. And as with extrusion, we need to work closely with our customers to create recycled solutions which comply with their product specification.
As we speak, we have our technologists sitting together with one of our prestigious customers, their technologists, to see how we could provide recycled solutions within their product specification, unlocking the potential for more use of recycled materials in new segments. I would like to say that the growth ambitions, both in extrusion as well as in recycling, will be staged according to our financial capacity. We are operating in uncertain times, and our ability to grow will have to reflect our earnings outlooks at any point in time. We will have to prioritize and stage our ambitions to be able to scale up and down with the world around us. Let me then move to the second priority. There will be no green aluminum transition without more renewable energy.
Unfortunately, despite increase in government's climate and renewable energy ambitions, developments is simply not going fast enough. Having the capability to develop, operate, and manage renewable power production at scale in-house is a significant advantage for Hydro. We will expand and upgrade our existing hydropower plants in Norway, and also looking into new projects, including pumping power stations, to seize peak prices and capitalize on the growing value of capacity of flexible power production. Because with an increasing share of intermittent power from solar and wind in the grid, utilizing this flexibility and strengthen our management of market operations will contribute to capturing value from this more volatile energy market. But to the establishment of Hydro Rein. It has been an exciting story of taking an active role in developing renewable energy to serve Hydro as well as other customers.
With increased volatility and framework uncertainty, participation in building new capacity and securing, securing long-term PPAs is key for us. So REIN's journey of growth is also serving an example of how Hydro has created something new on the solutions, on the shoulders of existing competencies and capabilities. And with the before mentioned joint venture in place with Macquarie, REIN is set to pursue profitable renewable energy projects, primarily in the Nordics and in Europe, with the ambition to achieve sustainable and attractive risk-adjusted equity returns in the range of 10%-20%. Hydro's share of the pro rata EBITDA from REIN is estimated to NOK 0.5 billion in 2030, based on the current funding outlook. And in total, energy's EBITDA is estimated to NOK 4.7 billion in 2030, but with further upside potential in REIN, pending different financial scenarios.
Then to the third priority. The global climate agenda has rapidly gained momentum, with major economies stepping up their commitments to push forward the green transition. In parallel, nature and social responsibility have become increasingly important, with expectations from all stakeholders on the rise. Going forward, we will continue to execute on our net zero roadmap with full force, while at the same time stepping up our contribution to nature positive and a just transition. In 2019, we set an ambitious target to reduce greenhouse gas emissions by 30% by 2030, as you see here. As already said, the main contribution to reach the target is the full switch in an electrification of boilers at Alunorte. But due to the early mentioned portfolio changes, we have taken Rolled Products and the 30% of Alunorte out of our books.
The target baseline for Hydro's CO2 emissions set in 2018 of 13.3 million tons of CO2 is now adjusted to 10 million tons. As the most substantial contribution to our decarbonization come from Alunorte, decreased ownership reduction reduces the impact of these efforts for Hydro's, Hydro's carbon footprint, making the 30% more challenging to reach. However, we are, we are committed to maintain this target, and we have identified new initiatives supporting our commitment. But as you see on this graph, overall, the portfolio changes and existing decarbonization program will result in a 47% reduction in our total greenhouse gas exposures by 2030, compared to 2018. By 2030, our ambition is also to demonstrate technologies that can produce near zero aluminum at an industrial pilot scale, which is a very important milestone towards our target of reaching zero by 2050.
To change the game in aluminum, and while executing on our decarbonization agenda, we also have to step up our efforts to halt and reverse nature loss, and to contribute to a nature positive future, reducing our overall footprint in general. Hydro has already an advanced nature agenda, with clear commitments to biodiversity, waste management, and non-greenhouse gas emissions in our operations. Having said that, we will step up and strengthen this further, increasing our scope and level of ambition. One example of this is that we are now going beyond our existing ambition of no net loss of biodiversity for the expansion of our bauxite mine in Paragominas. We will now also incorporating historical impacts from a 2020 baseline for the existing mine operations into the no net loss roadmap.
This will be facilitated through improvements in our on-site management of biodiversity inside our fence, as well as investments in biodiversity offsets in the wider landscape around our mining operations. To develop these opportunities, we have established partnership with two leading Brazilian environment NGOs, which works in the Amazon, combining our collective expertise in forest rehabilitation and conservation management. Finally, we will also increase the scrutiny on our supply chain and the nature footprint of the materials we source. We have already set the Scope 3 targets for CO2, but now we will expand this also to footprint, or the nature footprint of the material we source. And in 2024, we will establish an inventory of the air emissions linked to our supply chain and quantify baselines for the most material emissions.
This will serve as a basis for establishing targets to reduce the overall embedded footprint of our aluminum products in the future. Minimizing our climate and nature impact impacts the lives and livelihood of the people in different ways, which also creates dilemmas. To give one example, the world needs more renewable energy, but renewable energy requires land, and has an impact on the people living close to the sites and renewable production. Going forward, these dilemmas will have more focus, and we already see that in the world around us. We as a company need to establish transparent and open stakeholder dialogue to become better at finding solutions that balance climate, nature, and people affected. That is not only important in Brazil; it's important in our whole value chain, in the whole Hydro.
Because in Hydro, we are committed to improving the lives and livelihoods in the local communities where we operate. To support this ambition, we have developed this just transition framework that should contribute to creating and safeguarding thriving societies through four priority areas. First of all, we will respect and promote human rights through continuous dialogue, as well as due diligence processes, to identify and mitigate potential human rights in our own operation, in our value chain, and in the communities where we operate. Secondly, we will continue to support positive local development by being an active contributor for sustainable and resilient total communities.
Our recently announced investment in extending the Peace House concept into Paragominas and Barcarena, as well as our donation of a technical school to the Barcarena community, are examples of how we can take this role, using our position to be a force for good in the society. And this is also an example of investing in education and promoting skills, one of the most important drivers for positive change, but also a win-win in terms of attracting new talents in our local communities. Finally, with over 20,000 suppliers, we can positively impact a large number of people by establishing minimum sustainability standards for all our suppliers, including requirements related to human rights, decent working conditions, and nature impacts. Because what we are up to here is a systemic shift, not only within our fences, but in our supply chain, as well as towards our customers.
This last part is already embedded in the new Transparency Act in EU, and we already see interest for these topics from several of our European customers. Just before we signed the partnership agreement with Mercedes, they were not only talking about the quality of the products we're going to to deliver, the carbon content, but also if we were respecting human rights, if we had good working conditions for our people, and if we had an agenda for being a positive, a nature positive. This is coming, and this is about sustainability, is about creating the basis also for profitability going forward in terms of achieving agreements with customers, in terms of attracting and retaining people, as well as being considered as a responsible player.
But then let me move to the fourth part of the key priority list. The fourth and final key priority is to step up and shape the market for greener aluminum in partnership with our customers. In recent years, we have witnessed the emergence of new business models. Green steel can serve as an example. Here, companies have signed long-term off-take agreements with ambitious automotive customers, even before they have produced any metal. This development has been driven by ambitious customers in the automotive industry, and their desire to secure access to scarce volume of low-carbon steel, and they're willing to pay a premium for early access to the green steel. And here we see a huge opportunity for Hydro in this evolving market: to establish ourselves as the preferred sustainability partner for ambitious customers.
Here we have already spearheaded some strategic partnerships with leading players in the automotive industry. Mercedes, as has been mentioned, Porsche and Polestar. Just this spring, we started to deliver the first volume of Hydro REDUXA 3.0 to Mercedes. That is a 25% improvement to an already market-leading product, Hydro REDUXA 4.0, with a carbon footprint of 80% lower than the industry average. Our position is being noticed in the market. In just a few years, we have experienced a steady rise in ambitious customers approaching us to supply with low carbon metal they need to position themselves in lead, as a leading player in their fields. Hydro can offer low carbon aluminum already today, and in time, zero carbon aluminum, with full traceability, transparency at every step of the value chain, from mine to component.
This is a very strong position to build on. An essential first step will be to leverage strategic partnership with a selected group of high-profile customers to shape this growing market in an early stage. While this at first will be based on some few advanced customers, we know from experience that when the prestige players start to move, their competitors will quickly follow. We believe that there are significant value potentials that we can realize with green premiums, and we do see a real willingness to pay for best-in-class solutions. In this market environment that is developing rapidly, combined with the roadmap we have towards 2030, we believe in a significant value creation potential for Hydro.
Our ability to utilize our integrated value chain, delivering low carbon products with a strong sustainability profile, will create value for our customers, and equally, further enables premium pricing with bottom line effect for us. In fact, based on the pricing we're seeing today, combined with the product portfolio we target in 2030, we see a potential for green earnings uplift by 2030 of NOK 2 billion per year within our metal portfolio. We have the best upstream decarbonization roadmap in the industry, enabling large volumes of REDUXA 3.0 and even some REDUXA 2.0 before 2030. We have the best aluminum recycling portfolio, with the capability to turn old scrap into new near-zero products that trigger a growing willingness to pay among premium customers. And we have an integrated value chain that lets us deliver unique and sustainable solutions to our customers and partners.
And I believe, as many others, that the value of sustainability will only increase. We have positioned ourselves for this trend over many years, and now we are happy to see how this will increasingly contribute to our earnings. So to put this all into context, what are the key implications and focus areas for the business areas towards 2030? Well, the strategy in the business area, Bauxite & Alumina, is to execute on the 2030 decarbonization targets, to position the B&A as a sustainability leader in its industry. And through this, they should be able to offer low carbon alumina that can further differentiate the business, and which is also a very important contribution to strengthen their overall roadmap to profitability.
In energy, we will reprioritize and hasten our priority, bringing forward new renewable power, both in-house as well as through Hydro Rein, to support the sourcing of green power to the aluminum value chain at attractive cost. In Havrand, it has proven more challenging to mature profitable hydrogen projects, and that is why external growth ambitions we have therefore now saled down. Havrand will focus on internal decarbonization projects, and future internal projects will depend on that profitability can be achieved. In batteries, we will be selective and focus on areas in the value chain where we see interesting opportunities for value creation. Going forward, emphasis will be to make current investment a success, developing our position in battery recycling and sustainable materials as growth options for the future.
For Aluminium Metal, we will step up growth ambitions within recycling and grow the use of post-consumer scrap, while beyond the target of doubling the use of post-consumer scrap. Likewise, executing on 2030 decarbonization targets and to forcefully take leadership in developing the technology needed for emission-free aluminum is very high priority. While in parallel, shaping the market for low carbon aluminum, including harvesting green premium from spare head products. In extrusion, we will step up growth investing, investments aiming to increase market share in attractive high growth segments. This implies new presses and developing fabrication and value-added services across our global portfolio of assets with a natural gravity towards Europe and North America. As a global leader, extrusion will shape the market for greener aluminum and partner with customers on new greener solutions.
So to sum it all up, 118, 118 years ago, Hydro was founded on the basis of providing solution to the great challenge of that time, producing fertilizers to feed a starving population. And ever since, we have been at the forefront of industries that matter. This is our legacy, and this is what we bring with us as we now embark on a strategic direction, where we commit ourselves to pioneer the green transition of our industry. As I said, we will step up our growth investments in recycling and extrusions. We will step up our ambitions in renewable power generation, as this is the very basis for the green aluminum transition. We will continue to execute with full force on the decarbonization agenda, as well as stepping up our contribution to nature positive, and support to a just transition.
Finally, we will utilize our leading position to shape the market for greener aluminum in partnership with customers. But doing so is not just about transforming our industry; it's also about making electric vehicles, energy-efficient buildings, and infrastructure for the energy shift truly sustainable. Together with our customers, we can lead the way, creating industries that matter for people, for society, and for the planet. Thank you.
So, good morning, everyone, also from my side. I would like to present our outlook on the aluminum market, and the implications for Hydro, as the basis for our 2030 strategy. Starting with the global aluminum market, we see a largely balanced market towards 2030. We believe in growth in demand of around 2.9% in CAGR, and largely the similar growth in the production. Recycling will take market share with the growth rate of around 5.5%. We also see some growth in primary capacity, mainly in Asia outside China.
Digging deeper into the demand side, it's especially the transport and the electrical market segments where we see higher growth rates of the CAGRs of 3%-4%. And also, we see higher growth rates when it comes to green aluminum, maybe with the CAGRs up to 20% growth towards 2030. And the key driver for higher growth rates in these segments is the green transition and the demand for a lot more raw materials in the coming decades. Because aluminum is a key enabler for the whole green transition, and we are already starting to see this with our customers in the market now. And going forward, the green transition will require a massive amount of raw materials in order to build the new, greener infrastructure of the future.
This slide shows the transitional demand coming from the rollouts of the energy transition technologies in the coming decades. For aluminum, it's really the electric vehicles, the electricity networks, and the solar markets that are providing most of the growth in terms of volumes. But we also see interesting opportunities when it comes to building and construction, especially with the focus on more energy efficient buildings, and also circular solutions when it comes to building and construction. Copper substitution is also a very interesting market opportunity for us, and that is especially applicable to the heating and cooling market segment, as well as in electricity grids. Currently, we are also into the beginning of the acceleration of growth for several of these market segments.
The clearest example here is the electric vehicle transition, which provides strong growth opportunities for aluminum. Aluminum use in cars have been growing steadily over the last decade, coming from around 50 kilos per car in the 1990s to 205 kilos per car in average in Europe last year. There are also big differences between the different car models, where we typically see much more aluminum in the premium segments. Examples here are particular Land Rover models, where you see 700-800 kilos of aluminum per car. In the other end, you have cars, small cars, like a Fiat Panda, with less than 100 kilos per car.
But average aluminum content per car is now set to accelerate, driven by the electric vehicle transition. Aluminum provides lightweighting, which contributes to extended driving range, a key selling point for electric vehicles. But aluminum has also excellent crash protection properties, and crash protection systems made in aluminum have been in use for years. But with electric vehicles, crash protection becomes even more important to protect the battery from exploding during a car crash. And that adds additional aluminum demand in the battery enclosure and protection systems. The electric vehicle transition is also accelerating much faster than we saw 3-4 years ago. And back at that time, Norway was this exotic country with a high sales share for electric vehicles.
But now, in third quarter this year, in Germany, electric vehicles had a market share of 23% of overall sales. And in the U.S., electric vehicles had a market share of 8% of overall sales. And for every update of the sales forecast for the vehicle market, we see that electric vehicles are taking more and more market share. So if we combine these two effects of more aluminum in electric vehicles, and also the rapidly acceleration of the sales of electric vehicles, we see that average aluminum content per car will grow from 205 kilos per car in 2020 to 256 kilos per car in 2030.
For our core markets, Europe and North America, this will correspond to an additional demand from the automotive market of close to 3 million tons of aluminum and aluminum components. Looking closer at the electrical vehicles, they are not built the same way as the traditional cars. And we believe that two of the winners in the electrical vehicles will be aluminum extrusions and also large casted components. We believe that extrusions will grow from around 19 kilos of extrusions per car in 2019 to 42 kilos of profiles per car in 2030. So more than a doubling of the amount of extrusions per car in this decade. And the key components here are the battery housing and cooling systems, body components, as well as the crash management system. And we are already seeing this market with our customers.
My colleague, Paul Warton, will come back to this later in the presentation. On aluminum castings, then some of the casted components will decline over time with the internal combustion engine cars, like the engines and also the transmission system. But still, we see a net growth in castings in cars over this decade. And the applications are typically the electrical motor housing, but also large casted components. And in fact, with some of the new designs coming out with the cars now, we see a massive growth opportunity for large casted components in cars with a CAGR up to 40% from 2022 to 2030.
And large casted components, they do not only provide light weighting in the car, but they also simplifies the design and the assembly of the car, because one large casted component can replace a number of existing components in the car. So this saves a lot of costs at the car maker in the assembly plant. And importantly, also for Hydro, is that large casted component is very well suited for using high share of post-consumer scrap, high-graded post-consumer scrap, as the raw material in the product. So all in all, the electrical vehicles, they are still in the shaping when it comes to material choices and solutions.
We see a lot of opportunities for aluminum as a metal, but working very closely with the customers and the car makers is key to develop the right solutions made in aluminum. Another rapidly growing market with the green transition is the solar market. Overall, globally, we see a CAGR around 14% in this decade. Most of the solar panels are made in China, and in fact, we estimate that around 2.9 million tons of aluminum is used in China this year into the solar industry. But outside China, it is the mounting structures that is the most interesting market for us. Solar expansion projects, they are project-based in nature, and they also then need tailor-made solutions for the mounting structures based on the actual project site.
And also when you come to the project execution, then, also, just-in-time delivery, and short lead times is also important. So for Europe and North America overall, we see a potential additional demand in solar panel mounting structure of up to 600,000 tons in 2030. The third application for aluminum in the green transition is in electricity and heat conductivity applications. And for these applications, copper is getting the most attention, and especially the copper scarcity, or at least potential scarcity in the coming years. But aluminum is a very good substitution for copper, especially in those applications which see the highest growth with the green transition. Copper has a higher electrical conductivity, but aluminum has lower price and also lower weight.
Our experience from the market is that if we have a price ratio of the copper to aluminum price above 3.5, then typically aluminum will be the preferred metal in an electricity transmission application. Also on the weight side, then, for example, for overhead transmission line, then weight is important, and aluminum has 50% of the weight of copper with the same electrical conductivity. But often you cannot really just change the metal from copper to aluminum. Aluminum has different properties, so you need to design an aluminum-based solution, and that you need to do in close collaboration with the customers to actually execute on the substitution. And to give you an example of this that we have been involved in is in an electrical vehicle.
Here we have designed a connector, connecting the charging socket to the battery in the car, and substituting from an existing copper solution to an aluminum solution. This has been done in close collaboration with the car maker. You can actually see this application in the room here, at the table over there, and you can have a closer look at that application in one of the breaks. Another example that we are working on now in electrical vehicles is also to change the longer, flexible copper high voltage cables in the car. Again, it's the weight and it's the price advantage of aluminum that is the basis for this potential substitution. These two examples are just two examples that we have been involved in.
And if aluminum becomes the preferred metal in these two applications, then we see an additional demand of 200,000-300,000 tons per year in 2030 from just these two examples. A final example on the copper substitution is in the electricity grids, and the whole green transition is really a massive electrification of our societies. But to make sure that this happens, then we need to expand the electricity grids significantly. Aluminum is the preferred solution in overhead transmission lines, but it is also used in underground cables and subsea cables. And again, then we are coming back to the price ratio, as well as the potential scarcity of copper, that will be the main drivers for additional aluminum use into these applications.
But overall, the electricity transmission systems is again, a very interesting, market for aluminum, with the green transition. So all in all, we see a lot of interesting, new, higher growth, market segments coming with the green transition, for aluminum. But for this green transition to make any sense, we cannot just produce more aluminum, to contribute to the green transition. We need to produce it much more sustainable. And this shift is already seen now in the automotive industry, where the focus is changing from cutting tailpipe emissions to cutting embedded emissions. Over the last decades, the automotive industry has been pushed to reduce tailpipe emissions with the fuel efficiency standards and average fleet CO2 content.
But with the electric vehicle transition, then the tailpipe emissions will be eliminated. So the focus is now turning to the embedded emissions, which is the new sustainability challenge, for the automotive industry. Several car makers have made pledges that they will offer net zero cars by 2030 or by 2040. And when they have started to investigate what it will require to actually deliver on these pledges, they have gained two key insights. The first one is that embedded emissions will increase quite significantly when you introduce the battery raw materials into the car. And in this example, it's a 40% increase for a comparable traditional car.
Secondly, they also realized that more than 80% of the embedded emissions comes from the raw material production, from the aluminum, steel, and plastics in the car, and not from the production of the actual automotive components. So the traditional tier one suppliers to the automotive industry, they cannot really solve the sustainability challenge for the automotive industry. The car makers have to turn to raw material producers, like Hydro, to solve their next big sustainability challenge to drastically cut embedded emissions in their cars. The availability of low carbon aluminum is limited. And some of our peers, they focus on the purely on the emissions from the smelters, aluminum smelters, and also the electricity supply to the smelters.
And based on this perspective, then globally, we see around 18 million tons of aluminum production, primary production, with a CO2 footprint below 4 kilos of CO2 per kilo of aluminum. And currently, just for comparison, then, if you add Europe, where we see the highest demand for greener aluminum, but also increasingly in North America and Japan, and if you add these three regions, then the overall primary demand is 18 million tons. So based on this perspective, you could argue that the market for greener aluminum is oversupplied, as not all market segments focus on embedded emissions. But from the end user's perspective, it's the full value chain that matters, and it's the embedded emissions in the actual end product that matters.
So when you include this, full value chain perspective, and the product perspective into this analysis, then we see that the availability of low carbon aluminum with the footprints below 4 kilos per kilo is 7 million tons of primary production. And this is less than the total demand for primary aluminum in Europe of 9 million tons. So what this analysis also shows is that, several of the regions, where you have hydropower-based aluminum production, for example, in Russia and in the Yunnan province in China, the alumina source for those smelters have so much CO2 emissions, that the total value chain, emissions is far above 4 kilo per kilo. What this analysis also shows is that to control the value chain and control your, alumina source, is key to deliver low carbon, aluminum products, to the market.
So all in all, the green transition provides a lot of highly interesting growth opportunities for aluminum, and especially for green aluminum. The transition is happening now in our markets, and the design choices and the material choices are made now. Many companies are vying to take the leading position within sustainable aluminum. But we have a very strong starting point in Hydro, and we have the integrated advantage compared to our peers. We have the capabilities that we believe are key to deliver this green aluminum to the market in this decade. Like a high share of captive energy production, but also high share of captive of energy sourcing based on renewables. We have a global presence to serve global customers.
We also have a wide product range and can offer both, metal based on primary, but also based on recycling. We have a detailed decarbonization roadmap, and also technology development to back it up. And we also have the close collaboration with the customers working on the end products, where we can offer the full integrated value chain advantage to our customers when designing the end product. Coming back to this slide, and looking at the total value potential, from green aluminum. With the decarbonization of our upstream, mining, refining, and smelting business, and also our growth in recycling, Hydro is leading the way in sustainable and low carbon aluminum. In addition, we see a considerable, earnings uplift potential of NOK 2 billion in 2030, with the greener premiums in the market.
We don't have a public price list when it comes to greener premiums in the market. The greener premiums are negotiated individually with the customers based on the uniqueness of the product that we are offering.... So the ambition of NOK 2 billion in 2030 is based on the prices we observe in the market now, and also the added value of the reduction in embedded CO2 emissions, and also the CO2 pricing we see in the market. And the main contributors to this earnings uplift are two shifts in our portfolio. The first shift is the transition from REDUXA 4.0 product to a REDUXA 3.0 product in this decade. And here, the main enabler is the decarbonization or B&A activities in Brazil, starting early next year with the fuel switch project.
At the end of this period, we can also offer REDUXA 2.0 product to the market, with further decarbonization of our B&A activities, and also some reductions in CO2 emissions at the Norwegian smelters. The second contributor to the earnings uplift potential is the recyclers and their CIRCAL product, made out of 75% post-consumer scrap, and the CO2 footprint below 2.3 kilos CO2 per kilo aluminum. So far, the most important market for this product has been the building and construction market through our Hydro Building Systems business unit. But currently, we see a lot of interest from the automotive industry to take this product in use. And with this development, we can quickly become squeezed on capacity in the coming years.
For both product ranges, we still have, depends on the market development and also our success in the market. But in case of a quicker development than we see today, we have initial, we have additional initiatives that we can take, to increase the availability of low carbon aluminum, primary aluminum. And we also have more projects that we can execute, to offer more recycled metal to the to the market. So all in all, then the potential to lift both volumes and values through this decade. So to realize these values, we have our go-to-market strategy based on four pillars. Firstly, we have the integrated value chain offering under one roof. And we can work closely with the customers producing end products, with control of the sustainability footprint for the end product.
Secondly, we have a wide product range, serving most market segments, including the sustainability properties tailor-made for the customer's need today, but also for the individual customer's needs tomorrow. Thirdly, we have an increasing number of partners, that we are working with, and those are forward-leaning partners with high ambitions when it comes to more sustainable end products out to the consumers. And then we are taking the lead, collaborating with them, and showing what is possible when it comes to more sustainable products in the market. And finally, we have the decarbonization roadmap, concrete and detailed, demonstrating that we are not only the best partner for our customers today, but also in the coming years. Thank you. And then we will have a Q&A.
Thank you.
So we'll invite Martine and Hilde back on stage.
Thank you, Trond Olaf, and welcome Hilde back on stage. So we have a couple of microphones. And if you want to raise a question, please raise your hand, and also wait until you get the microphone before you ask your question, so the ones attending through the webcast can listen as well. So I think we have some questions.
Hello, good morning. Thanks for the presentation. Couple of questions from my side. loannis Masvoulas from Morgan Stanley. You show some ambitious targets on extrusions and recycling in terms of EBITDA growth. How much of that is purely organic growth, and how much M&A could we see across those different businesses?
I think the primary part of that is organic growth. It's new assets, it's new presses, it's investing in sorting and shredding technology. It could be with partners, but the main is organic.
Great. And the NOK 15 billion CapEx, would that include any potential M&A? Is there buffer for M&A within that CapEx spend?
That is always what we have on top. So I think Paul will go through the CapEx, but the M&A activities are normally something we plan for and cater for, but not as part of the guiding on the CapEx, like this 15.
Perfect, thank you.
Yeah.
One more question from me on the attractiveness of investments across different jurisdictions. You show, again, on recycling and extrusions, significant growth potential. How do you think about investing in continental Europe today, and how much of the overall share of growth is really coming from the continent relative to either Norway or the U.S. or some of the other markets?
I think on the recycling part, it's both in the EU as well as in the U.S. Being close to the scrap sources,
and be close to the customers. So, I don't have the share of investments in U.S. and Europe, but it's both.
Thank you.
Thank you. Sri Manivannan from RBC Capital Markets. A question on your decarbonization strategy. So has Hydro looked at peer technologies like Elysis, for example, and are you open to adopting such technologies, or CCS is your preferred route to net zero? Thank you.
Well, I think I could say that Hydro has been working on inert anodes. I think the industry has been working on inert anodes for 50 years, and Hydro has had a process some years ago to look at inert, but left it due to not finding a way to make the anode inert. But so we have chosen our path for CCS, for existing smelters, and then HalZero for if the day we're going to build a new line or a new plant. And the HalZero, we have been working on for the last eight years, and are now approaching an investment in a facility in Porsgrunn in Norway to start to test the four steps in that process.
We share Alcoa and Rio Tinto's, let's say, activities, in the sense that the industry has to find a way to produce zero carbon aluminum. And it's a race because what will be the investment cost? What will be the OpEx? What will be sort of the operating parameter for the new technologies? So we will have to see at that certain time, what will be what is demonstrated in terms of... That we can get the carbon out of the process, and then either buy technology or that we are successful with ours.
Thank you, and one more from me. The extension of Ioannis's question: Does the Inflation Reduction Act make the U.S. a much more preferred destination for recycling volumes growth compared to Europe?
Not in particular relating to recycling, but we see that the IRA has really put the climate on the agenda. In that sense, recycling becomes more attractive. So, but to build a recycler, we don't get funding from IRA on that.
Thank you.
Good morning, Liam Fitzpatrick from Deutsche Bank. Couple of questions on sort of strategy and M&A. You've done quite a few, I guess, both divestments and acquisitions this year. Should we expect more of that in the near term, or are you fairly happy with what you have internally in terms of growth opportunities? And linked to that, in terms of disposals, you have been trying to shift away from the upstream. Are there any opportunities within your primary business, you think, to slim it down and focus it around your Norwegian assets?
Thank you, Liam, for that, for that question, and good morning. When it comes to if there are opportunities to divest or invest, I think that is something we continuously evaluate in terms of... As I said, we can do a lot of improvements and investments, organic. But, in order to make shifts, you sometimes also have to think about either buying to complement or to divest. But, at the moment, we have what we have, and we will continue to evaluate that going forward. I cannot be more precise than that.
And maybe one on the markets in the shorter term. I think you often refer to kind of CRU in terms of their nearer term outlook, but it'd be interesting to hear what you're seeing, particularly in Europe, in terms of how advanced you think the destocking is, and how you think that's gonna pan out through the first half, and I guess all of 2024.
Yeah, so I think overall for next year, we see sort of a flattish development, compared to this year. So, I mean, the aluminum market is typically seasonable, seasonal effects. So, but so, and compared to that, may be weaker, at least in the beginning, but then maybe rebound later. But flattish development overall. So we are fairly in line with CRU.
Do you think destocking's pretty much done?
I think quite a lot of destocking has been done overall in the market. And also to add to the market, I mean, it's especially the building and construction market, which is very weak in Europe, while the automotive market is actually quite strong, seen from our side.
Good morning. Bengt Jonassen from ABG Sundal Collier over here.
I was hearing, I was looking at him.
When I'm looking at the recycling EBITDA uplift from 2027 to 2030, or NOK 1.5-NOK 4.5, and compare that to the volume, there seems to be some difference in the margin assumptions. So what could explain the low end of the margins, and what can explain the high end of the margin per ton?
Well, I think the range is reflecting sort of the capacity development more than the margin, the margin development, or that there is a difference in margin from the 5 to the 8. It's more the capacity build in that period of time. But Eivind will talk about recycling later, so he might comment on that margin question. You can think about it, Eivind.
Y es?
Yes, Magnus Rasmussen from SEB. I was about to ask something similar as Bengt, but more in terms of there's quite the increase in EBITDA from 2027 to 2030 in recycling is quite much bigger than the increase in PCS capacity. So I was wondering whether you were expecting some sort of margin expansion and how this sort of relates to the green premiums, which you have as a separate NOK 2 billion. But we can take that later as well, I guess. And I have a market question also about recycling, because looking at your supply chart from 2023 to 2030, the big delta is recycling, and obviously supply makes a big difference here in the future.
You are expecting, and CRU is expecting recycling growth, which is, let's say, in the 6%-7% area, quite a lot higher than we've seen historically. So it makes a big difference in 2030, whether you are able to achieve that or not. So my question is: How do you see that recycling growth coming along? We know that in China, for example, there is spare capacity on, on recycling. We know that they've been struggling to get scrap, and you have people saying that: "Okay, but 10 years ago is when we really started to use aluminum, and then a lot of scrap is coming." So I'm just curious about your comments on that.
No, I can. I mean, generally, I think what is sort of driving the additional recycling also is recycling of post-consumer scrap. And, you know, aluminum use in building and construction, especially in Europe, took off during the fifties and the sixties. And what you see now is that a lot of those buildings are sort of end of life, and also with the added demand, also on the regulatory side, to improve energy efficiency in buildings, we will see a lot more scrap coming back. I think also sort of a added element is that we see a lot of investments from many players going into scrap sorting, because there is a lot more attention now to take care of the aluminum scrap rather than landfilling it.
Mm-hmm.
And we are investing into sorting technologies, but so are other players as well, and quite a lot of capacity is being established. So we truly believe, and we see this sort of added post-consumer scrap availability for the market. And one final element here is also sort of the strategic autonomy or the focus now on de-risking from China. Then in Europe and the US now increasingly see that taking care of the aluminum scrap in Europe and in the US is also a way to sort of protect the raw materials for the industry base.
Any further questions?
There was a comment in the-
Yeah.
So one more question from my side. Yannis Mastoulas, again, from Morgan Stanley. There was a recent interview on the FT talking about some of the risks electric vehicles, China taking market share in Europe, and you have been highlighting some potential risks for aluminum demand for the European market. But also, there is also solar, where China is dominating, at least on the solar modules. Is it fair to say that the risks on the solar side are better managed because the mounting activity will still happen in Europe, while EVs is a probably the biggest threat for some of the demand forecast you've outlined today?
I think you commented on the solar in terms of the mounting-
Mm.
which is more of a local business.
Mm.
On the China, on the Chinese car, which you mentioned, that's something we of course follow closely, and we've seen the steep increase of import of Chinese car to Europe. And Europe recently announced that they were going to investigate to see if they should put up trade barriers. But that has also been this, let's say, challenged by the OEMs themselves, particularly in Germany and France, because the European OEMs, at least especially the big ones, they have big export also to China. So that will be interesting to follow that development.
Thank you.
Any further questions? No, it doesn't seem to be. Then we will have a break, and we will meet back here again at 10:40. Thank you.
Okay, good to go, everyone. Round two. I will now give you the Hydro Extrusions story. Listening to the introductions there from Hilde and Trond Olaf, the bar is set very high, so I have a job to do now, but we will cover it. What I want to start with, in terms of stepping up for future growth, is where we are in terms of the slides working. Just need the first slide, would be helpful. Yep, there we go. So first of all, Hydro Extrusions, current condition. Where are we today?
I think what you see on the slide there describes very well where we are in terms of the markets we've been developing to get us to where we are, and you'll see our story to 2030 is very much along the same lines, penetrating more into automotive, building our position in HVAC-R and industry. And also, you know, you don't see a share shift in B and C, for example. We very much changed the portfolio of the business that we do in this sector, much more high value added and of course, low carbon into this sector that is really pulling on what we do. The peer group position on margin per ton has been shown already. I will draw your attention to LTM, the NOK 6.5 billion. I'm very proud of that, and pleased with the team's performance.
You know, we faced headwinds in our market. We're in the sixth quarter now, where we face significant quarter-on-quarter, year-on-year reductions, 15%+. In some markets, 30%-40% declines versus prior year quarter, and still we hang on to this NOK 6.5 billion. That is a good performance with severe headwinds in our face. And of course, as we go towards 2025 and 2030, we expect some recovery in these markets, but to achieve NOK 6.5 billion versus the record year, last year, of NOK 7 billion, this shows you something about Hydro Extrusions and our resilience even in tough market conditions. So luckily, Trond Olaf has really helped me here. He's painted the picture of some of the mega trends in our industry.
My job is to tell you how Hydro Extrusions, how we operate and capitalize on these very positive growth trends we see in our markets. So first of all, customers in the target segments, the target segments we cover, customer behavior within these segments and customers generally, they are changing. They want much more from us in Hydro Extrusions. They don't just want build-to-print, bar length, aluminum extrusion. They want sophisticated, engineered parts, some of which you see over there. And Hydro is very well able to offer what these customers are asking for in the future. And the other key delta that you heard from this morning is the traceability, the transparency within the supply chain, and the final certification of what we deliver as components to our customers. This is today mission critical, and that will only increase in the future.
I endorse the message you heard earlier, being one Hydro, fully integrated supply chain, unique position for me in Hydro Extrusions, we capitalize on this. I never thought I'd be here saying to you, some of my customers buying parts, they go to Paragominas in Brazil to check out our credentials on sustainability and traceability. It's not just about the certificate these days. So Hydro Extrusions, to remind you, we're number one globally. We are clear number one. Number two is six times smaller than us in terms of volume sold, and we're very well represented across a number of countries. We're in 40 countries. We have more than 80 manufacturing plants around the world. We're in, of course, heavy extrusions in Europe and North America, but also building systems, predominantly Europe, but we sell overseas, and also precision tubing business unit.
When I come to copper substitution, they've got a very strong story on how that relates into customer solutions and products. So how are we gonna capitalize on what you heard earlier? The greener transition. That's driving many of these trends. So you've seen the numbers on the sector growth opportunities. The first one there, automotive. This one, having been in automotive extrusions and component supplies for some years now, decades even, I've never been in a position where I read a Ducker report and it says, "Extrusions is the fastest growing aluminum semi." We always used to be at the tail end of these Ducker reports. Now, it's at the front end, and that's great for me and my business because we have the solutions to really deliver what the customers need in this growing segment.
Our global position is also mission-critical in helping us deliver against these requirements, because many customers now, they have not just Pan-European platforms, they have global platforms, and they're looking for some consistency across the continents. Of course, a manufacturing company who can supply same products, same platforms across the world is increasingly a big advantage. Solar. You heard about the trends in solar and what Europe is committed to do to get to 600 GW installed capacity by 2030. It's good that the mounting systems was mentioned. We don't supply aluminum for the frames. This is still coming as a unit from China at the moment. That may change, but we supply what you see there, the mounting systems. And this is a local business.
This is where our regional presence in Europe is very important because you need to supply, again, not just long length extrusion. It breaks down into components. Often, it needs to be black anodized, surface treatment, especially for roof installations, and again, we are very well positioned to deliver value added and local supply. So we've done very well as this market is building now, and we're in a strong position to do even more going forward. So then the copper substitution, some good examples over there. In Precision Tubing, and this is in the US, in Asia, and also in Europe, we are really developing strongly, again, the trend on the battery electric vehicles. Trond Olaf mentioned it. This is connections on high voltage, low voltage cabling, copper substitution. And also, we work in the HVAC and R market, particularly in the US, also in China.
Again, copper substitution into that sector. We've got some very sophisticated extruded or welded tube solutions, which you can also see over there, which we've been working on for a few years now, and customers are buying. We have long-term contract to supply this now. So some of the investments we've done is supporting this copper substitution trend, which is absolutely here to stay. So very encouraging developments on the market, and Hydro's positioned to deliver what is needed. So where are we in terms of installed capacity and some of the growth investments that we've made over the years? These are coming on stream now, both in the re-melting side there, and, of course, in automotive extrusion capacity that's been installed. We've still got a few presses, the Hungary and Tønder Automotive. Still early days there. They're not coming on stream yet, but they will.
To emphasize a point, we don't build presses and look for business. We book business, and then we install the capacity. As Hilde said, "It's modular. It's step by step." But CapEx for these particular lines is important because you can't just take an existing DC extrusion press and run critical, safety critical parts, energy-absorbing parts, safety parts for automotive. You need to have specific assets in place. Then not to forget, the final one there, this is our regional business, perhaps more traditional, local customers local, variety of segments. We've also invested there, but here, we invest in plants with a seriously strong track record, the right people, competency, customer relationships, and we know with this business, investing in press capacity, it's sold because they have such a strong local position. That's particularly in Nenzing and Cressona in the U.S.
These investments are going extremely well, coming on stream as we speak. Now I'm gonna talk to you a bit more about automotive, which is the biggest bar in the sector analysis that will be growing in the future. First of all, given that it's Capital Markets Day, a video.
Modern cars are engineered masterpieces. They're packed with extruded aluminum. These aren't just extrusions, they're the heart and soul of modern automotive design. These engineered components make cars safer and more sustainable. Almost every car you see on the road contains extrusions from Hydro, but it's not only our extrusions that help build these cars, it's our ideas. Let me explain. When a car maker wants to get a part produced, they have very demanding specifications. We help them develop the part, optimize their shape and form. We create simulations of the part. We create prototypes and stress test it in our labs. This process not only saves the customer many costly iterations of the product, it provides peace of mind that they'll get the highest quality right from the get-go. So you see, the value lies not just in metal, but in innovation, knowledge, and reliability.
Much can be said about our scale and range. We have unmatched manufacturing capabilities, and we offer an extensive array of backup presses and locations, low carbon aluminum, and tailored alloys. But what truly makes us the go-to developing partner for long-term contracts, sometimes spanning over a decade, is our aluminum expertise. So there you have it. Our ideas help build safer and more sustainable cars. Simple, isn't it?
I wouldn't say it's simple, but, you, you understand the message. So here, a bit more on automotive, and then I'll move on to, some, sustainable and operations issues. I really want to focus here on the bar chart on the left. The rest you've heard of, earlier, and this is our nominations. So this is booked business in the last 12 months in automotive, in designed engineering components, for our customers, with the one Hydro fully integrated supply chain being part of that solution. And also with green premiums built into what we offer our customers now, 'cause this is what they're pulling on in automotive as well as in B and C. So that shows you EUR 2.5 billion. This is sales value, booked. This comes on stream.
Some comes on stream next year, some in two years' time as we install the capacity, the press capacity, and the value-added component, capacity. And that's a number you can take away and do the, do the numbers. This shows that the investments we've got coming on, we have business for these investments, and this is highly accretive to our earnings story in the future, and sophisticated parts, as you see there. So a little bit on sustainability, really reinforcing what you heard this morning. We do our bit on Hydro Extrusions, Scope one, Scope two, Scope three reductions. Most importantly, for our customers, we are their Scope three input, so they need to see we deliver on this. Not just PowerPoints, not just stories, not just ambitions for 2050.
What are you doing today, and can we believe what you will do for us in the future as we go on our decarbonization journeys? We are offering greener products to our customers, fully certified, and this is highly valued in the customer base. Then some examples in each of those categories on what we've been doing. I've got the purple boxes there. Arvid, thank you very much. Energy supporting us within the group on our decarbonization journeys for our own internal Scope 1, Scope 2, and also procurement with Eivind on aluminum metal. Some of my input materials, also best in class in terms of traceability and carbon content. Then on the customer side, CIRCAL, I think we bought most of the CIRCAL produced, sold it all in our building systems operation, and we've grown market share because of that.
And we've got a green premium because of that in the market. And even the 100R, which was classed to see if we could do it, we did it. I think we had 100 tons plus, and then we said, "Right, we're gonna take that, we're gonna sell it in the market." And this is a serious green premium if you want 100R. Did it, sold, installed on a building in Germany. And then finally, the business model is also changing. We work. This is Saint-Gobain, and, and Hydro Extrusions. We have customers now in B and C because of what they need to do to decarbonize their projects. They come to us and say, "We've got refurbishment. You need to take care of the aluminum in the installed windows, end of life," and there's more and more of this coming.
So now the deal is, we take the aluminum back, the glass goes to Saint-Gobain. This is recycled material, low carbon input, zero for our next installation, and we cast, we extrude, we put it in the systems, somebody builds windows, facades, it goes back into the new building, and the client's very happy with that because they've got a fully integrated circular business model with low carbon and certified, of course. So this is growing more and more, and this is exciting. So I talked a lot about B and C, low carbon, automotive, low carbon and solutions. This is just a few more examples.
We have many more, and I can tell you, the customers in the segments now, a whole variety of segments, they're really pulling on us for the Hydro solution and the low-carbon opportunities that come with this in the future. And it's an important part of what they're selling to their customer base. So that's a lot about market growth, capital to support the growth. And most of our delta to the NOK 8 billion in 2025 and then the NOK 10 billion-NOK 12 billion in 2030 is about growth coming in these targeted segments, but it's also coming from the improvement programs. So only one slide on this because I'm running out of time. So this is just two examples, what we do.
Being a company the size we are, with common processes, casting, extrusions, value-added fabrication across the globe, when we identify a best practice in operations, and here, automatic meter reading is one of those on quite a heavy, expensive input to our costs, energy. We have ways of being best in class on managing this valuable input to our process. And we do great things with that, and we basically say, "Okay, now we'll roll that out across the entire business." So I think we've done about half the plants, more to come, and there's a lot of EBITDA value creation behind that. And then automation. It's not so long ago, we were struggling sometimes to run all of our plant and equipment against the demand in the market. Not enough people, not just our industry, many industries.
So we launched on a big automation exercise, again, taking best practice and copy-pasting around the globe. And this was one that I was visiting a few weeks ago in China, where they've really got Industry 4.0 smart factory that you've all heard about. I've seen it in Hydro Extrusions in China. You know, heavily automated, 100% in-line quality checking, delivering millions of parts to our very tough OEM customers with zero PPM, with 100% on-time delivery. And that's what you have to do, and that's what we do do in Hydro Extrusions in these complex markets in the future. So much more of that to come to support this. So this is the summary of the story. You saw Hilde's slide, the 10-12. Where is it coming from? You see the bar charts there.
First of all, more development into the target segments that you've seen. So you see the bars increasing in automotive components in particular. The mix changing within, and then you see the bars for what's coming from internal improvement programs, plus the growth in our business with our target segments and customers, and of course, the green premium that comes across all of this as we offer them the fully integrated One Hydro certified solutions for their business. So 10-12 is where we know we can take this business in 2030. So now I'm really running out of time. Luckily, one slide left. So this is the summary. It's quite simple. We've got strong markets in the future. They want and need our products, what we can do.
So our job is to help our customers grow those markets with extrusion solutions and making sure that we're also growing our share, as we grow these markets. The second one is about we have to invest, sorry to say, so don't give Paul too much of a hard time on his CapEx. We have to invest if we're gonna support our customers in these markets, and there's good returns to be had, in doing that. And, of course, the automation, that goes on top of current running business. Then, of course, to reiterate again, the low-carbon solutions, the traceability on what we do. This, we will continue to work on, reduce our own emissions, managing our input materials, through the fully integrated Hydro, and this will help deliver the growth, that we see in the marketplace.
And then finally, in Extrusions, this is DNA: cost, cost, cost. We've always been good at flexing costs to what we do in the market. You see that in the LTM, NOK 6.5 billion. I will continue to work on that through digitalization, through standardization, through automation, to ensure that the inflationary effects that we all suffer from now, especially, we're covering that with our productivity improvements in the business. So simple strategy. We know where we're going. We know we can deliver these numbers. We need a little bit of CapEx to do that, and I think this is an excellent story for Hydro Extrusions. So that's all from me. Thank you very much. And I'm very happy to hand over to Eivind Kallevik, Aluminum Metal. My favorite supplier.
Anytime you're starting something from scratch, it's always a great undertaking.
To build greenfield plants like this, this is quite unique, actually.
Our existing plants are at 90,000 metric ton capacity a year, and Cassopolis is gonna be 120.
But this one needs to be successful because you're not gonna go build 10 other plants unless you get it right. You're gonna hit challenges, and there's gonna be road bumps, and there's gonna be mountains. We will be the people that will tell others what to expect.
We're trying to kind of put together a world-class facility with world-class people.
Thanks, Paul. Good morning from me as well, as probably the fourth person in the room today. November 16, a fantastic day. We opened a new plant in Cassopolis, Michigan. Really one of the highlights of 2023. Put it into a little bit of historic context, the last time we opened a greenfield recycler in Hydro was in 2002. So this is not something that we do every year, but it's a really important project for us to build credibility on how to do it when we do more recyclers in the future. Also, really proud to say that despite challenging times, this plant was delivered on time, on budget. Production started November 15, and it is ramping up as we speak, so a great achievement of the team.
If we take a little bit of a step back, back in 2020, we established a recycling strategy in Hydro. I got a lot of comments saying that this was an extremely hairy goal. How are you going to do it? Is it even credible? What we know leaving 2023, I'm extremely proud to say that at the end of 2023, we have a speed out of the year of what we targeted in 2025, two years ahead of plan. Not only on the capacity perspective, but also when you look at the earnings, we also have a LTM, which is more than double compared to what we saw back in 2020. So quite good in the way of delivering on strategies.... Trond have mentioned this, and I'll be quick on it.
I think what we, when we look at the circular economy, it is gaining traction. We've talked about it for a long period of time, but what we're seeing now is that it also provides real business opportunity, opportunities and new business models, like Paul mentioned with Saint-Gobain, and how we take windows and glass back with our Saint-Gobain as a partner and recycle, creating true circular, models. We also see good developments on sorting technology, and I will come back to this because that is important. How do we source the scrap, and how do we sort the scrap? When we look forward, we see the demand for recycled aluminum to grow with roughly 20 percentage points towards 2030, quite quickly outpacing the increased demand for primary aluminum.
We also see post-consumer scrap increasing across the Western world, in Europe, in the US, but we're also seeing it in increasingly large amounts in Asia, in particular in China. The growth that we see in recycling, and in particular the fact that it goes into billet capacity, is putting pressure on what we define- on the margins of what we define as, as cleaner scrap feedstock. Mixed scrap, which is where we want to really tackle the sourcing part, is becoming more important, and with our technologies, that's where we can also create some additional margins. We see large volumes of scrap still being moved from Europe and North America to the Asian markets, in particular to China.
But we do expect that there will be different regulations, both in Europe and the U.S., to ensure that we keep that resource on the ground in the continent, respectively, to take care of an important raw material. And of course, the more we recycle, the less we have to mine of bauxite and other critical raw materials, and we also save energy. So it's so simple. To tap into this large amount of post-consumer scrap and mixed scrap seems like a good idea for most. So why don't we see more players diving into the same space? If you look at scrap types in the market, everything from clean to mixed scrap on the right-hand side, we see that we have multiple challenges. There is significant supply chain complexities.
We see much higher levels of contamination when you move to the right, and certainly also bigger sorting challenges. So to use more of the mixed scrap or complex scrap, first of all, you need to have the advanced sorting capabilities, and you need to have the competence to sort the scrap into different fractions, depending on which product it will end up in at the end of the day. Secondly, you need the outlet, whether it goes into extrusion ingot, whether it goes into sheathing ingot, foundry alloys, or recycled foundry alloys, and so on and so forth. An important part of the strategy that we've had for the last few years is really to build the capabilities throughout this value chain.
What we've seen over the last year or two is that we have, in Europe, expanded our recycling portfolio through the entering of recycled foundry alloys through the Alumetal acquisition that we did in 2023. But we're also expanding other markets, like the HyForge line that we have built in Rackwitz which is also built on using post-consumer scrap. On the sorting side, the Alumetal acquisition gave us a state-of-the-art sorting line in Nowa Sól in Poland, around 100,000 tons. And we're also now working to industrialize HySort, or what used to be known as the LIBS technology, at several sites. And also today, which will be...
Actually, will be announced later today, we have entered into a joint venture in the U.S. with a company called Padnos, which owns a lot of feeder yards, as we call them in the scrap business. We will build a joint venture to them, where we will sort some of their scraps sources into higher value add sources. It's a joint venture, it's a 50/50, and it will give us well north of 30,000 tons sorting capacity just on this plant. Again, securing scrap in a different way compared to what we've done in the past.
With this, with the sorting capabilities we have in Nowa Sól, and the one we already have in Dormagen, in Germany, it gives us a much better ability to sort all the scrap, take it into the product capabilities and product types that our customers want. Since 2019, we have, as mentioned, significantly developed our recycling capabilities. We increased PCS consumption on an absolute level with 40%. But if you look at the speed that we have out of 2023, we have more than doubled the PCS capacity that we have. In the period, we also added north of 100,000 tons of sorting capacity. Also, from a portfolio perspective, it's important to see the development. If you go back to 2019, 2020, all we recycled was towards the extrusion ingot market.
If you look at the portfolio we have today, roughly 17% of the portfolio goes into recycled foundry alloys, and we're also starting to build a recycled position in forging, in HyForge. Obviously, then towards 2030, we will not only look at geographies where we invest, but we also will expand the product portfolios that we have into regions where we're not present today. In Europe, we see a bigger increase in capacity that's built on the Alumetall acquisition, which is in for mid-year in 2024. You will see a bigger increase in US based on the Cassopolis ramp-up. We also grown quite significantly on the silicon capacity.
In 2019, we produced roughly 10,000 tons of Hydro Silicon, and that this year will be closer to 90,000 tons of Hydro Silicon, spanning from recycled foundry alloys to extrusion ingots, which predominantly is delivered to Hydro's extrusion and building systems. All of these efforts are reflected in our profitability with EBITDA margins increasing over time, which of course is crucial for the sustainability of the business and development. As I said, we've delivered the 2025 targets already in 2023, and obviously, as Hilde indicated, we will not stop here. These are some example of what we are working on at the moment. We are doing an upgrade in Karmøy, where we are using the opportunity now that the market is a little bit slower. We will take out an old furnace.
We will build pretty much an identical furnace that we've built before in Kanti, to increase capacity and increase efficiency and increase profitability. We are looking at building a new recycling plant in Spain that will be built on the same blueprint as we've built in the US, with somewhat more silicon capacity than what we see in the US. We have built a new HyForge line in Rochlitz in Germany. We will take that capability, and we will bring it to the US when we see that the timing is right. So again, it's building the capabilities, it's building the credibilities, and then entering into new markets as we go forward.
So to round off, the recycling side, since 2020, I will repeat it again, we've more than doubled our PCS capabilities, and towards 2030, Hilde has challenged us to step up growth and recycling, we will once more double on capacity, PCS usage, and obvously, Bengta will answer your question at the end in the Q&A. Also, profitability will increase as a consequence of that. So when we talked about decarbonizing in the past, we've often said, that recycling is the easiest way, to get there. As Paul Warton alluded to or said, we produced the first 100R. That remains- that's been produced, it's been sold, at good margins.
That, of course, leaves a little bit of CO2 in the cast house process, and I will address that part in the next section of my presentation. So recycling well underway, but it's also, of course, crucial that we have a plan and a target and a roadmap on how to decarbonize the primary smelters that we have today, and that we develop a technology for how to build a new line or smelter in the future. When we work on decarbonizing our portfolio, I think it's important to say that we work on every little bit of CO2 that we emit. Very often we talk about alumina, very often we talk about the smelting process, but there are so many more also important small steps that we are looking at, and I will address a few of those as we go through.
The starting point for me, has been, and still is, and will continue to be renewable power. That is really the basis, that gives us the ability to produce low-carbon aluminum today. It enables us to produce Reduxa 4.0, at a 75% lower footprint than the global average for aluminum. Going forward, we actually expect the shortage of low-carbon primary in the market, as customers and regulators demand that industries reduce their footprint. That is one of the reasons why we launched the decarbonization roadmap in 2021, and we are pursuing initiatives to reduce, reduce emissions throughout the step ladder, as you see on my right-hand side.
Now, if we start all the way to the right, which is taking out, in principle, the last CO2 from a 100R recycled product, or taking out a bit of the primary cast houses as well. We've made some significant steps forward in 2023. We are working along three pathways. One is to replace natural gas with biogas or biomethane. Here, we've signed an agreement with Havrand, which start delivering in 2024 to the Sunndal smelter, where we will then take out some 20,000 tons. Havrand, Hydro Energy, has done their first hydrogen test at the Navarra recycler, proving that it's possible to remelt metal based on hydrogen without detrimental effects on the metal. Important step forward.
Thirdly, we're also working on direct electrification, so we will have two projects in 2024 in Sunndal and Høyanger on direct electrification, either through plasma or catalytic burners or heating, directly in the cast house. Again, putting us in a good position to meet the 2030 target of having a technology available to decarbonize the cast house production. The most complicated part of this, I will still argue, is to find a good and solid way to decarbonize the actual electrolysis process. The technological leap for this, will certainly be a huge step for us, but I think it's also important for the aluminum industry as such, to find a way to decarbonize the process as such.
So whether or when we succeed, and I would argue, I hope also Elysis succeeds, succeed, as somebody asked about in the hall or in the room before the break, I think it's important for the value chain and the industry that we are able to decarbonize. But then we should remind ourselves that all technologies at this step, you know, there are certain risks. It will take time to succeed. But that is also why we have to go through each of the steps diligently and in a structural good way to gradually de-risk the process and increasing the chance for success on the technological side, but also on the capital side.
I think overall, when you look at it, we are on track with the new technologies that we are developing, both on the emission-free HalZero technology, but also for the carbon capture part of it. We also allocated a very strong organization, so we do use our best people on both these paths to succeed over time. When it comes to carbon capture, we continue to work with Verdox as our main supplier and main partner on this, on the technology for carbon capture. So I will talk about some secrets where we can't look.
So this, this picture is from, from Sunndal, where we have a container, where we've tested the first off-gases, and this is also where we will install the first stacks of carbon capture equipment at Sunndal to capture the first, first CO2. So it's not only in lab scale, it's not only in, in the room in the US, we are actually doing work at our sites. In addition to this, we are... When we do relining at our smelters now, we are also rebuilding the superstructures to make them what we call capture-ready, when, so they are better utilized and better fit for purpose when the technology is ready to be installed on a wider scale.
We're also working together with national regulators as well as EU regulators, in order to have a framework in place, both for the capture, but last not least the storage for CO2 going forward, which is crucial. When it comes to HalZero, which Hilde said is when we will build a new line or when we will build a complete new plant, that is progressing according to plan. And just last week, we made the final build decision for what we call stage two, which will be built here in Porsgrunn, in Norway. And then I think, given the belief we have on this, so we approved the build stage, but we also started then maturing what we call stage three. So as we are building stage two, we are also starting from an engineering perspective to mature stage three.
This will be a rather large pilot, so it'll be built on 250 square meters. It will be packed with secrets, it will be packed with sensors, packed with measuring equipment, and I think it's fair to say that very few in this room, with the exception of Hilde, will be allowed to come into that room as we develop the technology. Very, very important and exciting step. So altogether, it's fair to say that we are on track to deliver first metal and first CO2 capture in 2025, and industrial-scale pilots towards 2030. If we then move further to the, on the, on the step, and then I will talk about the shaded part, which is called biomaterial.
Because we do see technologies develop over time, and what we see now is that our sub-suppliers or the producer of biomaterial, we can now upcycle products which was not possible if you go back five years or 10 years. So now we can upcycle biomaterials, either from waste from the forestry business in Scandinavia or from food production, and use that as a biomaterial into the anode production. So for us, it's also another important step forward, still early technology days, but we have to work on this as well. So we can mix this material into the anode recipes. We will test this in lab scale now, and we will have a full industrial pilot scale by 2030.
In addition, if we continue to move to the left of this stairwell or waterfall, we're also looking into biomaterials and biomethane in the actual anode production. We will test this both at Sunndal, and we will test it at Årdal, and we will also do some tests later on this year on hydrogen in Årdal. Again, reducing emissions further. So we leave no stones untouched when we work on the CO2 abatement curve. We don't often talk about logistics, but it's another important part that we need to look at. We have a very clear ambition in aluminum metal to reduce emissions from logistics by 30% by 2030. Some of the activities that we're doing is to move goods away from trucks over to sea, rail, or barges.
One of the examples here is through Maersk Eco Delivery line or delivery service, where we take all containers from China to Europe now on the new Eco line. That reduces emissions 85% on this route alone. Going forward, we will increase our efforts to develop what we, what's called so-called green shipping routes with our suppliers, both and, and use more digitalization and more incentive structures with our suppliers to green also logistics part. Then I think just it's important to say, because this goes through the entire value chain, as we are greening that part of the portfolio, we also pay a little bit of additional cost of transport. There is a cost involved for Maersk to do this.
We will cover part of it, just as we expect our customers to pay part of the greening transition that we have to do within our industry. But of course, it doesn't help to succeed with all the technological aspects of decarbonizing your product unless you have customers, and that, in a way, is what's really important here. So in order for us to succeed at the end of the day and transform the industries that we work with, and we serve through low carbon aluminum, we have to work closely together with our customers. And here, I think it's fair to say that Hydro and Hydro Aluminum Metal, we have a very unique position in our value proposition. The leading full-service offering we have includes a full range of high quality, low carbon, primary, and recycled materials across all segments.
Also importantly, being a fully integrated company, we can satisfy the ESG discussions and requirements our key customers have, because they can go all the way back to the mine, and they do, to make sure that we operate with the same standard throughout the entire value chain that we have. And with the recycling plants that we have, yes, we have a global reach, but we have a very local presence in the markets where we support. That, coupled with the metallurgical competence that we have, enables us to sit down with our key customers to develop key alloys, where we can introduce more and more recycled material to satisfy their high-quality requirements. Some of the key strategic partners we've talked about is Porsche and Mercedes, and the discussions we have with them today is not the normal customer-supplier relationship.
It's really where we sit down as partners to find the optimal way going forward. Truly, truly a change. Through this, close customer dialogue, it also means that we are very well positioned, in terms of providing meaningful volumes of low-carbon products, but also to partner with them, as I just talked about. But that also gives us the opportunity to partner up to do spearhead products. We have done 100R, we will do more spearhead products as we go forward with these players. And when you look at the list of customers, or partners of some of us in aluminum metal, strategic partnerships for Hydro when it comes to Porsche and Mercedes, it is really the decarbonization drive, the full transparency of the ESG or value chain that we have, which is one of the key components.
So for us, this is much more than just contracts. It's really about how we are able to assist them in driving towards their sustainability goal. We work with them, as I mentioned, to develop specific products for the individual customers, specific alloys, depending on which components it's going into. We work together with them to educate the end consumers about the value of greener products and the importance of greener products to develop a paying market that will allow us and our customers to move forward towards zero emissions. We also see that there is a growing keen interest to work together on what we can call nature and social products projects in the areas where we operate.
And that, of course, is important for us, as it is for them to ensure that we do operate as a good neighbor and that we have vibrant, local markets and communities where we operate. So, so far, we have unveiled some strategic partnerships. We've talked a lot about Mercedes, we've talked a lot about Porsche. There is more coming, and I think I'm fairly certain that there is one coming in not too distant future. So just stay tuned for more exciting news on this one. There's one part of the value chain that I didn't talk about when it came to CO2 emissions, and I will end on that note, because this is one of the most important parts, and where we also control the way forward.
And here, I think we will quite shortly, we will reach a new milestone on Hydro's pathway towards zero. And this crucial step will then take place in Brazil, and with my key supplier of one of my raw materials, John Thuestad from B&A, will take you through that step. But first, a little film.
Hydro has signed partnership agreements with Mercedes and Porsche to increase the use of low carbon and recycled aluminum in future electric vehicles. The use of low carbon and recycled aluminum will continue to grow as vehicles become lighter, while emissions during production are reduced. With operations across the entire aluminum value chain, Hydro has good oversight of the environmental, climate, and social impacts of our aluminum production, giving our customers full transparency of how our low carbon products are made. The raw material used to produce primary aluminum in Norway comes from Alunorte's alumina refinery in Brazil. By 2025, Alunorte will replace oil with natural gas, reducing emissions with approximately 30%. By 2030, Alunorte has a roadmap to further reduce emissions by 70%. Our production starts at the Paragominas mine, where bauxite is extracted. Paragominas mines approximately 11 million tons of bauxite every year.
Its numerous sustainability initiatives include the one-to-one rehabilitation project, minimizing environmental impact through reforestation, and no net loss of biodiversity in all future mine expansions. Hydro has a detailed and ambitious roadmap to zero, and it all starts in the Amazon, where we are reducing our impact on nature and climate while supporting positive change in the communities where we operate.
Okay, let's talk a bit about this exciting bauxite and alumina business, because as you saw here, the bauxite that we take out in Brazil is actually one of the best quality bauxite in the world. And let's also remind ourselves that this green shift in the world, you know, the climate type of promise of reducing, you know, the, the, the, the global warming by two degrees, it all is dependent on a viable aluminum value chain starting in the Amazon. 60% of the alumina going into Atlantic region is coming from the Amazon, and that's why we in Hydro have taken a very, very responsible path forward here to say that we're going to drive our Bauxite & Alumina business in a sustainable and profitable way. You know, the profit has been a bit challenging the last years because of other issues that I'll come back to.
But let's start off—let's see here. Let's start off with reminding ourselves that we are controlling Bauxite & Alumina in the first part of the value chain. We have a promise to the customers of pioneering the green aluminum shift, and B&A is a very important enabler, medium, short, medium term, also long term, but we actually can make a difference in this pioneering within the next 2-3 years, and I'll come back to that. We have a good starting point, and we are delivering on the promise from 2020 on the 2025 strategy. Eivind talked about, you know, how do we deliver Redux of 4.0 or better? And here, you know, we in Bauxite & Alumina is—we are his biggest opportunity, short term.
We'll deliver, Eivind and Hilde, because we have a program actually reducing this CO2, 1.4 tons of carbon per ton of aluminum with concrete programs. First step is underway. We already introduced a boiler, electric boiler from Norway, actually, that is cooking steam for the refinery process. It was a project that was delivered at below cost and had a 200% internal rate of return, and was six-month payback. We are building two more, so we'll have three electric boilers, and by year-end, we'll have our LNG ship coming in, so we'll start a transition to gas, removing oil on the calcination step. This will give us a reduction of 0.2 tons of carbon per ton of alumina and 0.4 tons of carbon per ton of aluminum.
Because as we all know, there's 4 units of bauxite, giving 2 units of alumina and 1 unit of aluminum. Then we'll continue with two more boilers by 2027, and that gives us another 0.15% carbon reduction, 0.3% carbon reduction, 0.3 ton carbon reduction on the aluminum, and that, again, will just drive this leadership position further. Our last step by 2030 will be to introduce another five boilers. These are proven technologies, low risk, and relatively low investments. By 2030, we'll then be able to remove all of the coal from the Alunorte refinery, and it will be an important step on our journey to zero. The only carbon left on Scope 1 and 2 will be from the LNG. Here we have bio alternatives, and we have hydrogen alternatives, but that's a bit longer term.
It will drive Alunorte down to the leading position on carbon emissions per ton of alumina produced. When we talk about Bauxite & Alumina, we have to remember that driving this business in a responsible, profitable, and operational way, that's kind of something we do in Hydro. But the most important is that we have to reduce the climate footprint, the environmental footprint, and increase our social reach to keep our license to operate in the Amazon. Hilde mentioned this, that, you know, on our journey and contribution to nature positive, we have taken a very proactive step. We have a reforestation program, which is already today, more than one to one. We are moving outside our mining area. We have introduced a game-changing bauxite residue or a tailings program called Tailings Dry Backfill, where we actually have removed the need for any tailings dams.
We know that this industry and the mining industry have had a lot of challenges on tailings. Today, in B&A, in Bauxite & Alumina Hydro, we don't build more tailings. We are moving into a sequence where we deforest one year, we mine, and we reforest the third year. So we have a cycle time of three years. We dry with natural drying, and we put the bauxite tailings back into the mine, and this is a licensed process, and it's a game changer in the industry and a leadership position. And this is. We are sharing this with the whole industry because we think it's such an important way of creating a more secure mining operation, but also reducing the need for new land for tailings. So it gives us a much lower footprint, and contributing to nature positive.
The second part of our footprint is the bauxite residue, and with our size as the biggest refinery in the world, we also have a huge deposit area. We have now a joint venture or partnership with WAVE Aluminium, where we have started a circular program for the bauxite residue. There's 40% pig iron in the residue, and we have now developed a process to extract this pig iron. Wave is building a 50,000-ton plant in Brazil, in Barcarena, as we speak, and this could give us an opportunity to deliver 1,000,000 tons of carbon-free pig iron over the next 5-7 years. Which again, brings us to our promise to stop landfilling of bauxite residue.
We are also selling some of it to the cement industry, but of course, this extraction of pig iron is a much more viable process because of the size of our operations. But this is very important on reducing the environmental footprint. Climate footprint, we take down SOx, NOx, and carbon. We do take down our footprint on environment, but the last step for us is increasing our social reach. Being a good neighbor, more or less what we see when we go to Rjukan, when we built our first industry. We have to have a viable local society to have a viable business. What we see here, our social infrastructure, community projects, and stakeholder engagement are key building blocks.
Maybe the biggest change has been building so-called tear paths or Peace Houses, where we have built community centers where people can come. They can get doctor, dentist, social service, they can get their birth certificates, and they can get training, education, and young kids can have a place to study or get to be educated on sports. It has reduced criminality by up to 70%. We have built 3 of these the last 2-3 years. We are building another 6 as we speak. That's a very important part of, you know, reducing criminality, increasing education. Second part is our community projects with so-called Barcarena Sustainable Project. There, the community leaders themselves are prioritizing the projects for improving the life in the communities.
The last one is the engagement with the leaders and with the volunteer work. But all of this is linked, that we need new type of competencies in our plants, both inside Hydro, but also in the industry in Pará. We cannot import labor, and we are introducing digital solutions, process steering. We need, you know, we need a totally new generation of people, and now we also donated a technical school with a capacity of 1,200 students to Barcarena, so we can actually develop these kids, because they are equally smart to the rest of the kids in Brazil, but they just lack the opportunity. This was done last year.
That brings me to, you know, when we are driving what we can actually influence, whether it's the dry backfill, which is capital avoidance and reducing our footprint, it's the fuel switch, which is driving down the cost and introducing a low carbon fuel source, either through gas or through renewable energy. When it comes to driving improvements that we can affect, we are. This is a continuous improvement program where we have more than 1,000 people involved. You know, we are really driving what we can affect, but we also need them to upgrade the organization. These programs will take us down on the cost curve, so we will be going from first quartiles to first deciles by introducing these more modern ways of running the plant and by the new fuel switch. It took... We are running all the plant at capacity.
We have a robust water management system. We have a press filter system for taking out the bauxite residue with world-class, and so on. So we have a very robust operation in Brazil, but we also see that the profitability so far has been challenged. With our improvement and the green shift in green premiums, we lift the profitability, and we also see that when we know we're transitioning a bit out of the energy crisis that we were hit with, with the Ukraine war, raw material prices are coming down, like, our fuel prices, caustic prices. So there is more normalization, but still, the marginal tons, you know, the marginal price setter is still China. China has a different cost level.
We see there's a deficit in the Atlantic of alumina and a surplus in the Pacific, but we don't see that as the European refineries are now marginal cost type of and should be taking our capacity, have not done that. They view this more as an integrated system since there's a deficit in the Atlantic. So we have been struggling to get an adjustment of the prices, and that's why a lot of the business has been underwater this year. But like I said, it's normalizing, and long term, we see that there will be a shift back to the 90th percentile on the pricing, and that gives also us the chance to deliver on profitability, you know, more in line with the expectations. Okay? So then one very important enabler is, of course, Arvid here.
Arvid is the guy that has been supporting us with getting the renewable energy, so I'm pleased to give him the word.
Good morning to all of you, and in my presentation, I will first share the big picture. Then I will give a status on where the business area is now, and third part is about the strategy going forward. I would like to start the presentation with this map showing Hydro's total energy picture. In 2022, our total global energy consumption was around 48 TWh, equity adjusted. As you all know, the energy cost, it represents up to 50% of the total cash cost from mine to metal. This is really a very important cost bucket for Hydro. The energy business area, therefore, has a very important role to play, both from a cost perspective, from a security of supply perspective, as also to green the portfolio.
Here you can see some of the things that we are now doing for the rest of the business in Hydro to help out, both from a cost, security of supply, and greening perspective. Let me start in Brazil, because it's been a fascinating journey together with John and the team to now operate, or we are constructing now three renewable plants to enable the fuel switch to add boilers in Alunorte and really contributing to what we see of decarbonization. In Norway, of course, we have the hub with the power plants already in operation, but we're also working hard on wind and solar project in Norway, Sweden and Denmark. We are helping out John and Extrusion in Denmark and in Germany now with solar panels on the roofs, in the garden, and also having batteries inside fence to help to reduce the peak cost.
So we are doing a lot of stuff now, really to support the whole greening of Hydro and also to reduce cost. Overall, the business area, as you have seen and you'll see later there as well, business area, energy delivers well above cost of capital on our own merits. In addition, we are adding profit to the other business areas through competitive sourcing cost and being also a central excellence for the totality. Moving over to geopolitics. Access to energy is a key and is closely linked to geopolitics. The war in Ukraine and the conflict in the Middle East now have put a huge pressure on our energy system, led to a spike in prices and increased volatility. We have all faced it.
Energy relations between now most of the European countries and Russia is really under stress and been decoupled, and we also see now a bigger west-east divide when it comes to the energy systems. Adding to that, we have the inflationary pressure, vulnerable supply chains, and high concentration of critical raw materials and processing capacity that amplifies these challenges. The response, the response has been an acceleration of the energy transition. Massive investments are now moving into renewables compared to fossil fuels. For every $1 invested in fossil fuels this year, $1.7 is invested into clean energy. We see more friendshoring and green value chains being built up regionally, with an increased focus on the regional access and security of supply. In Europe, European Union is, of course, driving this transition.
They continue to set high ambitions both for climate and renewables, and there's a clear willingness to support mechanisms and government aid schemes to support this change. And the chart to the right here shows the combined ambitions in Norway, Sweden, Denmark, Germany, and the UK for onshore and offshore wind and solar going forward, and it is a tremendous growth, as you can see. But all in all, the important thing here is, all these changes are very important changes in the energy markets that influences the whole of Hydro. And that's why it's so important for us in the business area to engage, understand what is going on, taking action on behalf of the whole Hydro. If you now narrow it down to Norway, we see a tighter power balance coming forward, as you see to the right here.
Electricity demand is growing faster than supply due to electrification in society and broadly, but also industrial processes being electrified. In a few years' time, we see that we can have the surplus will disappear, and we may be heading into power deficit unless things change. The main challenges, as we see them, are, one, the public opposition to onshore wind parks and the lack of political alignment and courage to tackle this. Two, the proposal for an unfavorable resource and taxation on onshore wind. Thirdly, the lack of certainty for when offshore wind will actually come into operation in the North Sea.... That being said, however, we as Hydro see still attractive possibilities to build attractive projects in the Nordics on wind and solar. What is Hydro's response for this, that there, there are tightening markets and challenges?
Because the risk for tightness in the market can give us, as a result, higher power prices, and this, of course, will challenge the smelter system in Norway. So that is why we now, in Hydro Energy, has said we take on an even clearer role. We want to take responsibility for developing more renewable energy in Norway and the Nordics, working together with local partners to find acceptable solutions. Long-term, responsible industrial ownership is needed to unlock projects, get acceptance, and this is actually where Hydro's DNA from Rjukan in 1905 still works. We know how to work with local societies. We want to develop these local societies where we are, just like John also now explained in Brazil. But we want to avoid exposure to market squeeze and high power prices in the spot and foreign market, which can really destroy the profits in Eivind's metal plants.
So then take me over to the second part, which is about the status for Hydro Energy. We have a strong hydropower position when it comes to cost in Norway, and you see on the graph to the left there, that we are still ahead of the rest of the peers when it comes to cost and performance. Last year, we also introduced what we call the EBITDA platform, which is adjusted to normal production and no area price gains. And we maintain that roughly NOK 3.5 billion is that platform that you can expect under normal conditions. And we also have the commercial contribution of around NOK 400 million on top of that, and as you will see later, we have now increased that ambition with another NOK 200 million towards 2030. And now, then to another important status update, which is about Hydro Rein.
It's a fantastic story. It started back in 2021, only 6 employees at that time, headed by Olivier, and a few selected projects on the drawing table. Today, 75 highly skilled employees, I think we're from almost more than. Yeah, first of all, I think it's 20 different nationalities in that team. On the project side, Hydro Rein has 4 wind and solar projects in construction, and the option to become a shareholder also in the solar project with Stadacre in 2024. Great projects, all of them. The SPVs where Rein is engaged have signed PPAs totaling 5.3 TWh per year, mainly towards Hydro's assets in Brazil, enabling the decarbonization of Alunorte and securing power to Albras.
Of course, the most important milestone in the last year, a month ago, we announced that we have signed an agreement with Macquarie to form a joint venture. The transaction value values Hydro Rein at $333 million as of the thirtieth of June this year, and this partnership really enables further development and accelerated growth of Hydro Rein. So I'm very impressed what the team has accomplished, and I'm sure that we have found the good partner, so let's have a closer look at the portfolio, where it stands now. The four projects that you see here in construction, and together with Vista Greener, will add a total of 2.4 TWh to raise captive power.
All projects that you see here are progressing well, and all are within approved CapEx budgets, and they will start production next year, all of them. The pipeline seen on the left side is heavily focused on the Nordics, and of course, we will mature to execution only those that shows satisfactory profitability. And that moves me to actually to that, how we have delivered towards our targets. To the left there on the top, you see the target, 2026 targets that we listed last year on the Capital Markets Day. And in summary, we are well on track to deliver on this. We are now 1.7 gigawatts under construction. We are now spending NOK 3 billion to deliver on that.
We have 1.5 GW added to the portfolio this year compared to the 500 we said should be the average. We have now updated the financial prognosis, and as you can see here, we expect to deliver NOK 410 million in EBITDA pro rata from these four assets, compared to the 400, 450 we mentioned last year. So in a short time, these developments have catapulted Hydro Rein into one of the leading Norwegian-based renewable energy developers, and this will now continue. All of you in this audience is very, very occupied about profitability, and we are happy to be challenged on that going forward, because we have high ambitions as well, and we have a partner that you know also have high ambitions.
What we say that we are looking at the equity internal rate of return at the platform level of 10%-20%, going forward, annually average. We see multiple levers to deliver on this. It all starts that we have a solid project return at the beginning, but from there on, there are levers to work on, like capital structure, optimizing cost base, cross-sale services, farm downs, industrialization, best practice sharing, things that we in Hydro are so used to have in the toolbox.... That has been our point over the last years, that the wind and solar industry needs to be industrialized. We need to have learnings across. We need to run this in a different way.
As I said, the total return potential, we really will strive to be in the higher end of this range on a platform level, when we are some years down the road. As you may also remember from the joint venture announcement, the Norwegian wind project, located close to the smelters in Norway, are not part of this JV, will be developed separately, while other Norwegian wind and solar projects are. And that brings me to an update on how we see now, going forward, renewable projects in Norway. We, in Hydro Energy, we remain positive towards the market for new renewable projects in Norway. Yes, we have seen cost increases. Yes, we have the tax challenge. I can assure you that we are working hard to get improvements in the current proposal. Let's see in a few weeks' time where it lands.
And yes, there are challenges locally, but we know how this can be addressed, and we are working closely with the local societies to get the solutions. Short to medium term, if you look at the graph to the right here, onshore wind and solar are most relevant, while in the longer term, also offshore wind will play a role, but with an uncertain timeline. And if you take this illustration to the right side, this is levelized cost of energy for the different renewable sources, and you compare that to what is now the expected power price forecast, you know, at the system level in 2030, you see that most of the renewables can be delivered below as the system price.
But you have to remember that when you look at levelized cost of energy, the income side is, in a way, as produced. So it means that solar and wind can, due to cannibalization effect, in the end, end up with lower average price than the system price, while hydropower with reservoirs may actually have an income side that is higher than the average system price. And this is what I will come back to also later. All in all, to summarize it, there are attractive projects in the Nordics, and we want to take a role. We have the competence, the trust, and capability to do so. And here is also where the combination with the rest of the system comes in place, because we see how important the long-term PPAs is for metal, and it is for, for Brazil.
So this is really a key also to understand how to unlock the optimal solutions. I think you have heard over many, many years that we have a robust sourcing strategy for our smelters. And for a long time, you just said, "Okay, how important is that?" Well, if you look to the graph to the left here, and you see the spikes in prices that we have during the energy crisis, you... I think many of you are saying, "Yes, it has a value to have a long-term sourcing strategy." This has served us well. And the power consumption in the Norwegian smelters is fully covered through to up to 2030, and did not suffer any other peaks, and are still very, very good in shape for producing aluminum, and we're continuously working on the sourcing after 2030.
The strategy ensures robustness and really makes Eivind smelters being a low end of the cost curve. The importance of the PPAs, you can really see from the graph to the left there. In the graph to left, when you look after 2030, all the lines on the, at the top there, that are different analysts' prognosis for the prices after 2030, while the gray area there, that is where the same LCOE as we have on the previous slide, on wind projects in the Nordics. So what is really what you take out of this? It illustrate the reciprocal interest in long-term contracts for both project developers and power consumers, reducing the exposure to volatile prices, both, both on the up and down side.
By internalizing this risk, in addition to securing sound profitable renewable project, we also realize increased profit in metal compared to spot pricing, and this is, of course, a key. It's the totality that matters. So... And now with Hydro Rein, and also as part of this total picture, we have another company that can really help us to develop more renewables, also together with the new partners. To summarize this, do you see to the left here, we have a competitive setup that will continue to deliver renewable projects with profit, more profit from the market organization, and still competitive cost for the smelters. And then to some, let's say, explanations to how the renewable system plays out in Norway and also compared to what we can see on the continent.
I mentioned earlier that flexibility of hydropower is a key, and it's enabler for more wind and solar. The graph to the left there, on the y-axis, you have prices per hour, and on the x-axis are all hours in a year. You can see here that in 2023 and 2040, shape is different. Simply said, as more and more, let's say, power from wind and solar come into the market, the more value it has to, for us as a hydropower producer, to produce more and more to the left, that you produce what you can produce in the few hours where the prices are higher.... So that makes capacity investments in our hydropower system profitable.
And the second part is that the point that we have a very flexible hydropower system also makes the shaping or firming cost for renewables in Norway much cheaper than other places. So in Norway, in NO2, we see that the cost of bringing wind power into baseload is only 5 EUR per MWh, while in Germany, you have to add 20-25 EUR to the wind power price to get to a baseload. So this is really what makes it then, let's say, we end up with a lower delivered cost baseload to a smelter or another baseload consumer in the Nordics than in most other places in the world, because of the flexible system we have. So investing in hydropower capacity is profitable to handle more volatility, and that investment enables more wind and solar with a lower firming cost. And we have the whole portfolio.
It's the kinder egg. This is how we can really optimize the totality. So before. But this is really a, let's say, this firming cost perspective is, of course, something that is more and more important now, the cannibalization effect. The, the more you get the wind and solar into market, the more it important it is to understand this logic, how to firm from as produced to a baseload. Before I go in for landing, just a short update on Havrand and batteries. It's already been mentioned earlier today, but in Havrand, we have had a breakthrough producing the world's first batch of recycled, recycled aluminum, made with green hydrogen in a three-week industrial scale test at our extrusion plant in Navarra, in Spain. So thanks to Paul for making that possible.
It proves that fossil-free green hydrogen can be used safely in aluminum production, and it gives the same high metal quality as with gas, and it gives very high energy efficiency. So this was a good first test. The next step in our qualification of this technology is to build a full-scale pilot in Høyanger, which we plan for in 2024, 2025. And with this, we believe that technology will be fully matured to take it further. As Hilde mentioned, Havrand has now scaled down external ambition, and will in the next phase, focus internally on Hydro sites around where we see the biggest potential, and showing that in a Hydro context, with the green premiums, that hydrogen plan can be invested into in a profitable way as a decarbonization measure.
Last but not least, within batteries, we updated our strategy last year. You heard about that. We are working in three areas on sustainable battery materials, and the strategy towards 2030 is to build around these three pillars: circular solutions, anode materials, and lithium. Key focus to mature this, and we are targeting then 3 times value uplift in 2030, compared to equity invested in 2027. And I can assure you that we see good uplift in some of the companies we are now invested into. And at the bottom here, you see the portfolio holdings we have, Corvus, 24%, the leader of maritime batteries, and 0.6 in Northvolt, the leading European, cell manufacturer based in Sweden. So also exciting holdings these days.
So let me just close out with this page, and the main message are listed here, and assuring you that we have strong focus on the value uplift in batteries, aiming Norsk Battery to deliver on average WACC above 15%, and that the Rein JV should, on a platform basis, have an equity IRR between 10 and 20% on an annual average. So thank you for listening.
Thank you, Arvid. Then we will have another Q&A session, and I would like to invite the Paul and Eivind and John back on the stage. So again, if you want to ask a question, please raise your hand so we have two microphones. Any questions?
Start with answering Mike's question?
Yeah, yeah.
Mr. Olavson, you want an answer? So, remember when what you're comparing, right? So you're comparing a full earnings potential to PCS. But of course, the volume in recycling is not only PCS, so it's also PCS, it's pre-consumer scrap, it's conversion agreements that we have with our customers. So it's a little bit of sensitivities in there, which skews the margin when you just do it per ton. So that's the reason. And that means I cannot give you a precise answer, but use that range.
Yep.
Hi there, loannis Masvoulas from Morgan Stanley. Couple of questions. First, on aluminum metal. We talked about the decarbonization technologies, and especially very interested in the electrolysis roadmap to carbon free. So you have HalZero, and you also look at the carbon capture. Can you talk about high-level the economics of the two? Is it fair to say that HalZero, HalZero will require rebuilding the cells, and that's gonna be quite capital-intensive, while CCS is more of a capturing what you emit without really investing a lot upfront? And then how should we think about the OpEx between the two options?
So if we start with HalZero, so that's really when you want to build a new line or a complete new plant, so there is no retrofit discussion. Obviously, if you build at an existing plant, there may be some brownfield benefits that you get in terms of power systems and quays and logistics and infrastructure, but it is really building a new plant. Estimate from CapEx, it's approximately the same as building an existing HalZero line. So you won't see a huge difference, but remember, early days. The carbon capture also comes with a capital, because it's not gonna be free, because you have the capture, you have the liquefaction, you have the transportation, and you have the storage.
So it's quite a few things coming at the tail end of existing production. But that's really, the intention of that is really to utilize and to enable us to utilize the existing plants, which are well invested and operates at very high levels, also for the future. So it will be a combination of those two. On OpEx, again, early estimates, I don't think there will be a significant difference between HalZero and Hall-Héroult . So the big difference is the fact that you decarbonize.
Great. Thank you very much. And the second question on bauxite and alumina, we talked about... Or you talked about the community, community engagement, which is something you've been doing quite regularly, and I think there seems to be a step up over the past few years. How does that fit into the existing court case in the Dutch court? I'm asking that because we know there is a class action suit with 40,000 Brazilians involved. All this community engagement initiatives, is there any shift in how these communities are pursuing legal action? Or should we think about this being two different groups of people, and you're not really engaging with those involved in the court case?
No, I think our approach has been in Hydro to be a good neighbor, and I think we said that we had forgotten this a bit if you go back a few years. So we reintroduced programs like Sustainable Barcarena, you know, to rebuild the relationship with the community and make sure that we actually had short-term, medium-, and long-term programs, and transitioning responsibility more to the community leaders by educating them, and then funding some of this, but giving the responsibility to a structured process for the communities to prioritize where they wanted to put their efforts. That was one part.
The other part was to build an alliance with the government and other stakeholders to these peace houses, which was initiative from the government to reduce the inequality, which is also fitting very well what we are doing, improving the lives of people around in vulnerable communities. And the third was to look at drive education, which is also core to Hydro's, you know, social programs wherever we work. That, of course, is done very closely with the communities. But remember, some of these lawsuits were already lawsuits from the history in Brazil. So in a way, this was something we did a little bit independent. So the legal life of the lawsuits were kind of living in Brazil, and then a special group in Brazil lifted this to the international arena.
And now we are, of course, working, you know, dependently and independently on these social program, because we think it's the right thing to do. But of course, we have a much better, closer relation. You know, Hilde has been with me. I meet the communities every quarter since I started there. So I think we have a totally different presence, which is how we generally work in Hydro. And we are pretty confident that we have, you know, a good case to how we are operating, but we'll have to just follow through the legal cases.
Thank you very much.
Well, perhaps one for Paul on the extrusions business. So what you've done seems to be a fantastic job in terms of holding margins this year, despite the volume backdrop. How confident are you on holding on to that through next year, particularly if it remains fairly challenging in Europe?
I have to say, every quarter it gets tougher and tougher. Q4, of course, we, we see the same headwinds. There was an earlier question about, destocking. Have our customers really finished in terms of, optimizing their, their inventories? I think with most customers now, we're at that level, so orders we receive now, I think, is reflecting the, the real consumption levels. There's one or two industries where they've got some spot issues, where they've perhaps got a bit too much inventory for the next one, two quarters, but I think typically we're at the, the low end. Of course, year-end, customers are driving inventory down to hit their numbers for end of year. So Q4 is tough, for sure. And then I, I think I'm in agreement with the CRU forecast for next year.
H1's gonna be continued headwinds, and then an improvement from the summer into H2. And then into 2025, they've got some quite healthy numbers for extrusion, 6%-8% growth in Europe and in US. So I think I concur with that, with what I see at the moment, that it's gonna be tough for a few more quarters, but we're building on an uptick in H2.
Thank you. Maybe one on Alunorte. It's been quite a tough recent few quarters, it seems, from an earnings perspective. Can you give us anything a bit more tangible and near-term in terms of what's gonna really turn this asset? Because there's a lot of improvement that you're targeting. I think it's around NOK 4 billion, but it's tough to know when that's gonna come through and actually hit the numbers.
Yeah, I think, you know, if you look at the energy mix change, that kicks in when we transition oil and gas, because getting out of oil and introducing gas and electrification will give us a huge cost improvement, which comes now, starting early next year and going through next year. So this is one... Of course, all of the improvements will kick in, but that will be a major step change, because that's something like $25 per ton improvement.
Maybe one final one on recycling. I'm wading through the presentation pack, which is very helpful, but looking at the recycling targets, it's all, it seems very kind of end-of-the-decade weighted. Why is it taking so long, and why couldn't we see some of that coming through earlier?
Oh, you will see some of that coming through earlier. The Kanti project, we are working on at the moment. The Torija recycler in Spain, you will see come a lot sooner than 2030. The HyForge project in the US, you will also see coming quicker. So those three will certainly be closer in time. Then it's about market availability or, you know, how does the market grow? And then it's also about capital availability in terms of doing the growth that we want to do. But certainly, you will see much more towards 2030. It's not all gonna come in 2029 and 2030.
Srivathsan Manoharan from RBC. My first question is on aluminum cost. I see alumina prices have come down 7% year to date, energy down, fuel oil down, etc. But I see on a $ per ton terms, your aluminum costs have still stayed flat. I'm just trying to understand why or what are the key cost pressures faced by Hydro and the industry currently?
Okay, so we still have a timing effect, which is important to remember. So when John's spot price for Platts hits pretty immediately, it hits my books several months later, and that you will see for several cost factors. And then obviously, there are inflationary pressures on manning and other things that also comes into play.
Okay, thank you. And the second question is on the alumina sourcing strategy. So firstly, are you paying any green premiums to source low-carbon alumina? And secondly, I understand the Yarwun Refinery offtake contract ends in 2030, and it is on the low end of the emission curve. So how do you plan to replenish those low-carbon alumina volumes in the long run? Thank you.
I'll start off, and then I'll hand it off to John. For me, it's the same thing on alumina sourcing, as I said on the logistics parts. As the industry is decarbonizing and greening their own products and services, we will pay a premium to help that, and that will be the same thing on alumina. So as John is decarbonizing his product portfolio, we will also pay an additional green premium for that. You're right, the Yarwun contract is expiring at the end of this decade. John is my sourcing partner, and he takes care of that. But of course, reliable, good sources of high quality and decarbonized products is important also for the external volumes.
Yeah, absolutely. And if you looked at the carbon journey, we are actually moving as we speak. So by 2025, we'll have a 30% reduction, 2027, 50% reduction. So we will be in the best positioned company in a region in the Atlantic where there's a deficit. So as I'm... And of course, we are relying a bit on getting also some of the value of the greener products. And another element here, we have had customers now, like Mercedes and other partners, actually coming and more or less working with us locally. So there is kind of a value also to the sustainability story, which the customers are very concerned about.
Because, you know, these value chains need to be sustainable throughout what we do, and that's why I think the social, the environment, and climate is important, starting with my part of the business.
Thank you.
Hi, it's Matt Greene from Goldman Sachs. Paul, got a question on extrusions. You touched on offering, excuse me, touched on offering solutions for OEMs. But perhaps you could just touch on some of the research and development you've had to make around alloys and being able to deliver larger, more complex extrusions. You know, are there any sort of limitations or challenges in delivering what, you know, delivering the solutions that OEMs eventually want?
Yeah, well, you picked up on a key point in automotive component supply. It's very much about us finding solutions for the specification of the customer. So they don't come and say: Here's the solution, just extrude it. They have crash performance requirements, they have light-weighting requirements. Of course, they have weight and tolerance requirements on what we need to do to solve their issues. And I think Hydro is best in class in terms of coming up with these, either alloy solutions through our own Hydro Extrusions and also through our supply base to ensure we've got the right alloys to deliver on those requirements. My area is then much more about the shapes and the performance of these alloys during the crash performance, let's say.
That's where we do an awful lot on simulation, and then prototyping. The simulation to prototype compatibility is really important. Otherwise, you waste a lot of time just prototyping, prototyping, prototyping. This, again, is highly valued by OEMs. So joint work on design development, simulation, and then rapid prototyping. In Hydro Extrusions, we have a industrial-scale prototyping facility, both on casting and on extrusions, up in Finspång in Sweden. So again, this fast-tracks product development and trialing, so we get very quickly to the right alloys, the right design and component solutions, and then the physical prototyping. Then, of course, they launch into all their testing and certification, and then we're in a very strong position to go into the nomination and serial production of what we do.
If you look at some of the examples over there, I can talk you through, you know, specifically what we've done on, on some of those areas. The other one is very much the copper substitution. There, the innovation and the R&D and the alloy development in Hydro Extrusions has really been outstanding, global leading practices to come up with some of the solutions you'll see on the copper substitution alternatives. That's welded solutions on sheets. That's poly coating for the conductivity and the high-tension cables. It's also on very innovative extrusion processes that we do in China for internally grooved helical tube for air conditioning. So a whole bunch of real lead-in innovation solutions for our customers to get this copper substitution through into the customers.
Thanks very much. And John, just on, on Alunorte, you know, converting to the electric boilers, once the full conversion is gone, are you able to put a number on how much power is required from, from Rein? I presume it's all coming from PPAs via Rein. Can you put a number on how much power is required?
Yeah. What we have done now is secure the three first boilers with the Rein relationship. And how many megawatts is that again? I have my-
180 .
180.
Sorry, is that net 180?
Yeah.
Okay.
It's total, total is 600 MW.
So what's the gross renewables required to power that 180 net? Are, are you— So are you having to put-
Sorry, sorry, sorry. It's about a factor of 4.
Factor of 4. Okay, thank you.
Yes, Bengt from ABG. Again, I just noticed that on the extrusion profitability roadmap, you said NOK 8 billion by 2025, which is a nominal target.
Mm-hmm.
Whereas for 2030, the NOK 10 billion-NOK 12 billion is a real target.
Mm-hmm.
How should we think about what kind of, let's say, inflation have you put into that figure? That means that your nominal target probably is a bit higher than, than the real target.
Yeah, I think it's the Hydro methodology, is to talk much about, about real numbers in the future. Then you make your assumptions about inflation or FX, or whatever. When we said NOK 8 billion, that was a nominal number we said in 2021, and we still work towards that in the short term for 2025. That's the reason for the, the two differences. I think all the other projections in the, in the pack is very much real numbers.
I'm Sir Jacob Lodia. Eivind, you mentioned that there are regulatory changes on the way in order to keep more of the scrap in Europe away from Asia. Could you elaborate a little bit on what those changes are, when it potentially could impact your supply in Europe and eventually prices on scrap?
Yeah. I think when you, when you look at the waste management regulations that, that's being worked on also on the EU level, there are discussions to ensure that you don't see more metal leaving Europe than what you see today. So they want to keep it back because it's seen as a valuable resource. And, and again, if you go back to the basics, to recycle, it takes about 5% of the energy. You don't have to do the mining in the, in the Amazon region. So it's really about... Also from a sustainable perspective and economic perspective, it makes sense. Then we'll see when it takes effect. I cannot sort of say if it's 2024, 2025, but that's going to come.
The other way you can work on this is to also set up sorting and shredding plots close to where you see the big export hubs. So U.K., for instance, is an area where we see a lot of European metal disappearing from. And of course, we have activities in the U.K. already. We are working also on activities in the U.K., where we will be able to keep more of the metal onshore in the European Union. How that would impact prices? We'll see. Most of the scrap that leaves is what we call mixed scrap. So again, really sort of the tank that we want to tap into. So hopefully, that will alleviate some of the cost pressures.
Thanks.
Morten Normann from Carnegie. A follow-up on the EBITDA bridge in extrusion. You mentioned 2025, a target of NOK 8 billion, and I saw in the presentation that you are increasing CapEx by about 20%, and you basically blamed that on different foreign exchange rates. So if you were to rebase your 2025 target on current FX rates, what would that be?
I think I'll have to defer that, finance question to my controller. So that's one for the round table, I think, tomorrow. But certainly, we need CapEx, in the- what's in the ground already, but also more CapEx to achieve that 2025 number. And you'll notice on the delta to last 12 months, the growth CapEx is the main driver. There's the internal improvement programs, and then there's the market recovery, which is not just in terms of the extrusion markets, it's also in terms of, at the moment, the billet shape premium, for example, 'cause where we are today is not where we need to be in any recycler on the spot prices. So there has to be a recovery in the billet premium prices going into, as I say, especially H2 2024 and going into 2025.
Very good. Then we have to end it there, and lunch will actually be served now, just outside of this room. So enjoy lunch, and we'll be back again at one. Thank you.
Welcome back to all of you. Hope that you have enjoyed lunch, and that you are re-energized for the financial part of the agenda. This is the fifth year that I have the pleasure to present Hydro's financials for you. But I am as excited as I was the first time to translate all of today's presentations into figures. But I am especially excited because today we see clear evidence that all our efforts over the latter years have made us more resilient, and also that we are increasing greener value creation.
The short-term outlook is still uncertain, so I will go through the financial framework today to show you how it helps us navigate through the uncertainty in the market, while also working to maintain and strengthen our original 2025 targets, as well as setting new, and what we believe are ambitious, 2030 targets. But let's first start with a summary of the last 12 months. We have delivered robust results despite the challenging markets we have faced. All business areas, except Bauxite and Alumina, have delivered returns above their cost of capital, with Aluminium Metal delivering the highest, and Extrusions standing out, displaying their ability to maintain margins in a market where the demand has fallen by double digits.
Both ROACE and EBITDA has declined in line with weaker economic growth, but we have maintained our focus on pioneering the green aluminum transition, with 60% of capital the last 12 months allocated to support this ambition. Let's start a bit by reflecting on the short term, where volatility in current revenue and cost drivers is persisting, providing limited margin support, as we've seen declining energy prices and value-added premiums, which have flattened the cost curve year-over-year. If market spot prices realize at current forward curve, and we take the last 12 months from Q3 as a starting point, we get a reduced price and currency effect of around NOK 0.9 billion. This includes negative effects from lower price area differences, lower LME, lower premiums, and lower PAX. This is partly offset by lower raw material prices, with significant contributions from caustic prices.
If we then assume that recycling margins reflect the current market environment and extrusion in line with CRU expectations, then we reduce our results by another NOK 1 billion, which is mainly recycling margins. The fuel switch, which John talked about, is included in the improvement program, but the improvement program has a historical baseline in 2021. But in the last 12 months, we have had high fuel oil prices, which gives a higher impact of switching to gas, where a large part of the contract is fixed price, on top of the fuel switch effect in the improvement program, which gives another NOK 700 million next year.
Then we have increased CO₂ compensation with higher ETS prices, and we also have no, or we have negative effects from the fact that we are not selling power, from Slovalco in 2024, as we were in 2023. But this is largely offset by the fact that our strategic hedges in 2024 are more favorable than they were in 2023. And finally, we end with our effects from the improvement program and commercial ambitions. You love your spreadsheets, and we're all trying to forecast what is happening next year, and this is not a guidance. This is an indication based on the biggest items, and there are many parts which are not included in this analysis also. Over the cycles, we have good experience with addressing short-term volatility, and we are doing it from a better and better starting point.
We have increased our resilience by strengthening our portfolio flexibility, and also by appreciating the value of acting quick and decisive. During 2023, we have seen extrusion billet demand in Europe declining by 25% year-over-year, driven by the declining residential building and construction, and overall weakening macro industrial segments. These sectors are tightly linked to what we see happening here in the world around us, with higher interest rates, inflation, and softer industrial sentiment and activity. On the flip side, we saw an increase in the demand for primary foundry alloys of about 11%, which is supported by the bright spot in the market, which is automotive demand. This shift in demand displays one of our competitive advantages of having a flexible product portfolio developed continuously over the last decade.
This presents us the ability to quickly adapt to the volatile market demand and rapidly shifting consumer preferences to capture opportunities in the segments that they arise in. If you only produce standard ingot, you would not have that opportunity. We are also using this flexibility in our recycling system in both Metal Markets and extrusion to mitigate short-term volatility and keep inventories as low as possible. In extrusion, we have also reduced production through reducing the number of shifts, implement other manning reductions in Europe, ensuring that despite large volume decreases, we maintain margins to the extent possible. But we are also helped by the Norwegian krone hammered. In addition to adjusting capacity to market demand, we now see more than ever how important it is to have secured the margins and the raw material exposure.
The business area with the most challenging profitability and cash flow generation in the current market environment has been bauxite and alumina. So for 2024, we have secured the majority of our share of gas, coal, and electricity exposure, reducing exposure to price-spiking raw materials, while remaining open on the upside for a balancing alumina market. We have also mitigated short-term volatility through our strategic hedging program. We started the strategic hedging activity in 2020, following a long period of non-satisfactory margins and returns. With most of our upstream business exposed to commodity cycles, we wanted to secure a more robust financial position in the lower parts of the cycle to support our long-term objectives and our larger targets over the cycle.
This has been accommodated by hedging the integrated margin for parts of our alumina and aluminum portfolio 2-3 years ahead, meaning hedging a combination of aluminum prices, corresponding raw material prices across the value chain, and also our net currency exposures. The hedging activity, as you are well aware of, had a rough start, and since inception to November 2023, a NOK 2.4 billion loss was realized, with large LME losses, partly offset by gains on raw material positions. If we look into 2024 and 2025, then we are largely balanced, with LME contributing positively, but largely offset by the negative impact on currency hedges, driven by the significant weakening of the NOK versus the dollar. I continue to hope that we lose money on these hedges, as then we are making much more money on the unhedged part of their portfolio.
But if the cycle deepens, then this will contribute to our resilience and also our ability to deliver on our strategic ambitions and long-term value creation. Let's then look a bit more forward. In 2019, we introduced a financial framework, which has guided us through the very volatile market environments we have experienced the last years. And although it has consistently developed, it still resides on the same fundamental pillars. Last year, I used the analogy of playing defense and offense at the same time, and this year, we continue to display our ability to combine the short and medium-term mitigating actions with delivering on and stretching our strategic growth ambitions, ensuring that we take full advantage of the ability to, in the current market environment, strengthen our competitive advantage and further differentiate from our aluminum peer group.
On the defense side, we continue to ensure financial strength and flexibility by further structuring our improvement and commercial ambition to 2030 by additional NOK 6.1 billion, and also through securing parts of the exposure through our hedging program. We also have NOK 2.9 billion in undrawn credit facilities, which gives us room to maneuver in all scenarios. A large part of my job is to ensure that we have robust profitability roadmaps for Hydro, but also for each business area. Over the last 5 years, we have delivered a ROACE of around 11%, which is above our over the cycle target. And looking forward, we are also there on a Hydro level with a 17% ROACE potential in 2030 if we use CRU's price assumptions.
BNA has not delivered satisfactory returns, but we see that BNA are close to 12% in the CRU price scenario when we include the greener premium potential, as we are now letting the greener premium flow through the value chain to the respective enabling parts of the organization. We also strive to continue to optimize working capital. We have on hand by delivering over NOK 4 billion in reduction this year and targeting another NOK 2 billion in reduction next year. And this brings us back to our Q4 2020 levels when we adjust for price and portfolio changes. On the offense side, we continue to follow our clear principles for capital allocation, with 45% of our CapEx allocated to growth and return-seeking projects for the period 2024-2028, aiming at capturing the above 20% demand in greener aluminum on annual rates.
As in 2023, we will continue to look at reallocation opportunities to support this. These ambitions do not deter us from healthy shareholder distributions. In total, we have delivered NOK 30.7 billion back to shareholders since 2019, both through dividends and buybacks, in line with our NOK 25 billion adjusted net debt target. We continue to steer according to this, as you will also see from our proposed 2023 allocation. An element which is essential to resilience and value creations are our improvement programs, and I am very pleased to present significant new potential here, supported by digitalization, greener premiums, and also new commercial ambitions in energy. From our improvement target in 2023, we have NOK 5.4 billion in additional ambitions towards 2030, and the main levers continue to be operational excellence, procurement, and fixed cost improvements.
We have also added another NOK 1 billion ambition as a result of a newly finalized digital full potential exercise that we have completed across the organization. We also have an additional potential of NOK 3.3 billion towards 2030 in the commercial areas. The existing commercial program will deliver NOK 1.1 billion more towards 2030. However, we now have comfort in energy's ability to continue to deliver and grow strong commercial improvements, and we include their historical deliveries in the baseline, and then we stretch these with NOK 0.2 billion towards 2030. And last, and probably most excitingly, we have our ambition for greener premiums with a potential of NOK 2 billion on top of this by 2030, given the pricing of premiums that we are seeing today taking place in the market.
In total, we are now targeting NOK 14 billion in accumulated improvements by 2030 within these categories. If we start with the NOK 2.7 billion from operational excellence, the majority of the bauxite and alumina improvements will come from the Alunorte fuel switch project and also some other energy efficiency initiatives. And remember again, that these improvements are based on 2021 margins, and the value of the fuel switch at current market prices is significantly higher, as Jon mentioned, $160 million-$190 million. In aluminum, metal, and extrusion, the main improvements are delivered through continuous improvement of the production process in the plants, enabled through continuous business system work like AMBS and EBS, and those are related to improved productivity, lower raw material usage, and overall improved operational performance.
The second category is savings within procurement, where we have an additional potential from today of NOK 1.5 billion towards 2030, and the majority in this program comes from extrusions and bauxite and alumina. Finally, we have improvements in fixed costs, where the total will come from aluminum metal, with efficiency improvements through robotization and automation, and the ongoing digital initiatives should also be able to stretch this going forward for also the other BAs. If we look at our commercial initiatives, it is important to remember that these are highly dependent on the market development, and thus, the short term looks a bit more challenging.
But that said, we have extended the ambition towards 2030, with an ambition to deliver NOK 6.1 billion, of which NOK 1.1 billion is related to customer-driven growth initiatives and new products in aluminum metal, market share and growth and margin improvements in extrusion, and more value generation from commercial operations in energy. We have our total green premium value creation ambition on top of this, where, for the sake of this visualization, we have split the improvements between aluminum metal and bauxite and alumina, as this is where we make the changes that enable lower carbon aluminum. However, as we have also seen so far, extrusion will have the ability to create value on top of this through both additional premiums and also volume commitments from greener products.
The annual CapEx to deliver on the remaining improvements and commercial ambitions is estimated to be around NOK 1.5 billion. Last but not least, we have also further stretched our recycling growth ambitions, where we target an EBITDA of NOK 5 billion-NOK 8 billion for 2030. In Hydro, we take great pride in our improvement culture at all parts of the organization. People that move in and out of Hydro continuously comment on this to me when reflecting on what is different on the inside and outside Hydro. I would like to give you some more insight as to how we work with improvements. Hydro is four business areas, but it is also one Hydro. The business areas have established an improvement culture, but we also work a lot on improvements across the company.
When we changed the operating model back in 2019, we also targeted significant savings from our global business services, or GBS in Hydro lingo. Here we have reduced costs for the businesses within IT, finance, and HR, delivering around NOK 360 million by the end of this year through scale, analytics, automation, and also cost-efficient localization. We recently undertook a global benchmark on Hydro staff costs, which are now at world-class levels. However, in true Hydro spirit, we are not satisfied here, and we see that within the different categories, there is big potential for additional savings, especially through digitalization, and we therefore have stretched the global business services targets another NOK 300 million by 2030. In 2019, we also launched a NOK 400 million group procurement initiative with an ambition to deliver by 2023.
We rolled out best practices, we invested in tools, we raised capabilities, and quickly, through structured ways of working, this grew to NOK 1.6 billion. But as you strengthen the organizational capabilities, and with more than 30,000 suppliers that we have, we now target another NOK 1.5 billion, lifting the total procurement ambition from 2019 to NOK 3.1 billion, which actually means that procurement is the single largest improvement activity that we're currently undertaking. And this way of working is now being shifted to a new area, where we already have and are delivering significant value, but with a hypothesis that the potential is much larger and with an ambition that this will outgrow the total procurement improvements, and that is a digital ambition.
As I said, we've completed a full potential across the organization, resulting with a large potential where NOK 3 billion represents the lower end of that range, and we estimate that of these NOK 3 billion, NOK 2 billion of this is already captured in existing improvement programs, but that leaves another NOK 1 billion stretch to put on the 2030 ambitions. The digital initiatives will impact and improve operational efficiency, reduce our production costs, and increase our overall profitability. We will continue to strengthen this program, and I look forward to continue to share examples of how we improve the organization in the years to come. Improvements come through EBITDA, and improvements come through the cash flow also. Since the pandemic in 2020, global aluminum markets have been characterized by significant volatility, increasing global political instability, and also much tighter supply chains.
The combination of those led to a number of structural changes and market effects, which drove our operating capital from NOK 13 billion in Q4 2020 to all-time high levels of NOK 34 billion during the second half of 2022. Since then, we've worked targeted to reduce inventories, optimize our supply chain, and increase our operational flexibility. I am pleased with the efforts in the organization operating capital, where we've managed to release NOK 4 billion this year. However, we are still NOK 17 billion higher than in Q4 2020, but this is also due to several external effects unrelated to performance, such as currency, significant increased receivables due to CO₂ compensation, overall higher price level for both finished goods and also raw materials. We have also grown quite a bit in that period, both organic and inorganic.
We have added significant recycling capacity, and we've also expanded our product portfolio offering. This has led to a natural increase in, for example, post-consumer scrap inventory levels and also required alloy availabilities. Due to the political instability characterized by the global markets, and particularly the commodity markets, we have worked relentlessly to secure critical raw materials and decrease exposure, dependency to certain countries or markets. While we recognize that some of these strategic supply chains impact our working capital negatively, they also made us more flexible, resilient, and better prepared for the current macro environment. We will continue to focus on inventory and capacity management, and we are currently targeting another NOK 2 billion release for 2024, which will be achieved through a combination of efficiency improvements, but also with the current price level that we're seeing in the market.
As a company, in Hydro, we have thrived for over a century, largely due to our ability to adjust to global mega trends, reallocate capital, and also capture high return opportunities. We see that the world is changing and consumer preferences are shifting, and this drives new aluminum demand for responsibly sourced, fully traceable, low-carbon products. This demand creates profitable growth opportunities within recycling and extrusion. We believe that it is essential now to allocate the capital and resources necessary to capture these market opportunities and continue to position Hydro as a market leader in greener aluminum. This means that we will continue to primarily allocate return-seeking capital to ensure growth in recycling and extrusion. At the same time, we will also continue to focus on upstream cost efficiency and decarbonization with full force to enable our greener product offering while safeguarding assets and operations.
Finally, we recognize that access to renewable power supply at acceptable prices is the ultimate enabler for Hydro becoming a market leader in the green transition. Thus, we will continue to allocate selectively growth capital to strengthen our equity power sourcing and ensure portfolio resilience. We also maintain and develop our growth options in batteries, which will compete for capital if return expectations are sufficiently attractive. Back in Q2, we guided on a total CapEx spend of NOK 23.5 billion in 2023, which includes Rein. This is a high number compared to our historical spend, but it is also a year where we have successfully divested 30% of Alunorte and reallocated that capital into the strategic growth areas. We have been active in M&A with the Alumetall and Hueck acquisitions, as well as funding significant organic growth portfolio, like the Cassopolis and Hungary recyclers.
We have also had eight extrusion presses under construction this year. Since we gave our 2024 guiding at the Capital Markets Day last year, the dollar has become about 10% more expensive, and the BRL and Euro has also strengthened to these levels or even more. This gives us a large translation effect, estimated to around NOK 2 billion. In addition to the small carryover from this year, this gives us a guiding for 2024 of NOK 15 billion at spot effect. This is our base case that gives us comfort with the current market outlook, our commitment to our capital structure, and also our dividend policy.
With our strength and growth ambitions in recycling and extrusion, we see potential for increasing speed of organic growth, but this will depend on market developments during the year and could be pursued in a stronger market scenario. Sustaining CapEx will stay at this elevated level next year, and some of this is temporary, as we have a pipeline replacement in Brazil, which will finish in the coming years, but some is also a permanent shift due to the weaker NOK. As you see on the right side, if we take the sustaining spend in 2017, 2018, adjust for currency inflation, we are around where that should indicate, even a bit below. A large share of our total investments are greener investments. I am often asked if these are based on unrealistic market assumptions with respect to future carbon prices or other highly uncertain parameters.
While there is always uncertainty in assumptions, I prefer the conservative approach and rather underpromise and overdeliver as the green transition continues. And within our greener investment portfolio, which the last 12 months was around 47% of total investments, the greener projects have very strong profitability expectation based on margins and prices that we have either received historically or we are seeing today. The only part of the investment portfolio where there is a high degree of uncertainty with respect to final profitability is the electrolysis abatement investments, as this is still R&D for many years to come. However, we are sure that if we deliver as expected here, this will be profitable investments, in addition to solving aluminum's challenges for the next decade.
So for the period of 2024 to 2028, we expect to invest around NOK 3.4 billion in the abatement program, with 2027 and 2028 being the most capital-intensive ones, with around NOK 1-2 billion per year as we move towards larger pilots. And this is before any public funding, which carries a high probability. In addition, the corresponding OpEx in the same period is around NOK 300-400 million per annum, up from around NOK 150+ million today. We have an ambitious growth portfolio, as we believe that this will significantly improve our competitive position within our industry, and also because we have a portfolio of very attractive projects, giving returns significantly above our cost of capital.
To the left here, we have taken our planned net non-sustaining investments for the next five years. If we look at the different categories within the decarbonization share of CapEx, there are some composition changes from last year. This is due to the gradual completion of the Alunorte fuel switch project, partially offset by LNG boiler in Alunorte, and decarbonization programs in aluminum metal. Batteries remain an attractive growth option for Hydro. We estimate an average normal cost of capital of around 8%, however, with large variances across the different segments. We are expecting an IRR of around 10%-12% based on the current portfolio that we have. We also have some other return-seeking investments, which includes upgrades to the Norwegian hydropower plants and also the most profitable projects at our smelters.
But with the updated strategic direction, we are strengthening the prioritization of recycling and extrusion investments, and now they take an even larger share of the allocated CapEx. We still expect good medium and long-term profitability in these areas. Although the current market is depressed, these return figures are based on over the cycle margins. Let me also just show a short example of how some of our extrusion investments create strong returns in both the high and the low parts of the cycle. In the extrusion system, we have more than 150 presses, ranging in age from more than 80 years old to brand-new ones. Where we have old, inefficient presses, it is quite lucrative to replace them. In the example we show here, we are replacing two old mid-size 9-inch presses with one new one.
An important motivator for replacing old presses is to improve the automation and ergonomics. The demand on a new press is roughly half of that on an old press, and when you replace two old presses with one new one, this gives significant cost savings. Maintenance costs on old presses tends to be high. When we put in a new press, the maintenance costs tend to be much more reasonable for the foreseeable future, and it also carries a much lower downtime than old presses. Our new presses typically have longer billets, higher specific pressure, and shorter dead cycle times. The longer billet helps with a lower scrap rate and reduces the scrap cost significantly. The combination of lower scrap, higher productivity, and lower downtime means that production volumes on one new press is not necessarily much lower than what we get on two old presses.
Overall, these cost savings, as you see here, they give a healthy return, irrespective of the current margin. So in total, these are the returns that we are chasing through our proposed capital allocation. We have the flexibility to choose whether we go ahead with this or not, and if the market or other outlook factors changes, then we can pull on the brakes as we do from time to time. I mentioned the word resilience several times in my presentation today, and there is a reason for that. I strongly believe that allocating according to our strategic modes improves our position and increases earning resilience across the cycle. This enables us to deliver on our improvements, growth ambitions, and also shareholder distribution.
In the last 10 years, the upstream part of our portfolio, LME and PAX, which is heavily exposed to global market cycles, has been approximately 66% of our EBITDA. Recycling and extrusions, which are margin businesses with more stable earnings and less global exposure, has been approximately 25% of the EBITDA, and this has increased to 30% in the last 12 months, where we have seen stronger margins. But if we look towards 2030, we see that this trend will continue, and Hydro will be less exposed to upstream earnings, as approximately 50% of EBITDA will come from the upstream part and the rest from energy, extrusion, recycling, and greener premiums. This development is supported by how we invest today, the focus on our improvement programs, and also the decarbonization roadmap, which enables the greener premiums.
So everything we have been today sums up in our profitability roadmaps. We present three different pricing scenarios for EBITDA, ROACE, and cash flow for 2030. These scenarios are not forecasts, but a simplified, indicative long-term potential based on sensitivities after we have delivered on the planned improvements, measures, and growth initiatives. These scenarios are based either on current market prices, prices we've seen the last five years, or external CRU and Standard and Poor currency assumptions. At the end of the third quarter this year, we had around NOK 122 billion in capital employed, with around 63% allocated upstream and almost 25% in extrusion. We start with an adjusted EBITDA of, the last twelve months at approximately 8.5% ROACE. And if we add our planned improvements, commercial ambitions, growth, and also the greener premium ambition, we are at around 15%.
The ROACE remains stable at 15% when we adjust further to current forward prices, and at the 5-year average, we see a ROACE of 13%. However, when we run the sensitivity on external market expectations, we see ROACE reaching 17%, indicating satisfactory profitability based on our current ambitions. But this is dependent on the market, and we also have a 1% spread on the greener premiums here. The cash flow scenarios shows the cash flow available for return seeking and growth CapEx and shareholder distribution. This ranges from NOK 17 billion-NOK 23 billion in the different scenarios. We see possible further drivers not included in these scenarios, both on the positive and on the negative side. On the positive side, we could see further upside potential due to market and macro developments, and we have a higher greener volume potential than we have visualized here.
We can certify additional hydropower-based smelters for REDUXA, and we can also invest in recyclers to increase silica capacity. Declining focus on greener products or unfavorable regulatory frameworks can have a big negative impact. If we refer to the analogy from last year, in order to play well offense and defense, we need all parts of the portfolio to do their part and to have a target to satisfactory profitability. As I said, we've struggled the most with bauxite and alumina in recent years due to the challenging alumina market, where despite a first quartile cost position, results have not been where they should be. As a starting point, this is a challenging situation to understand, as one should maybe have expected more curtailments, especially given the ease of making capacity adjustments at refineries compared to a smelter.
From the press, we read about struggling refineries. This may still take place. But another factor to keep in mind is that many refineries are part of an integrated value chain, where a curtailment would expose these value chains to Chinese export prices, which would balance the market at a significant higher price than what we see today. So we are working on improving BNA's profitability, and we are making big steps through the fuel switch project, contributing significantly. However, the biggest contribution we believe BNA will make to the coming company in the coming years, and why we believe it is important to be integrated, not necessarily long, is that bauxite and alumina is the largest medium-term enabler of lower carbon, greener products, which is lifting the overall Hydro profitability.
We have here, therefore, included their share of the value creation in the profitability roadmap, which brings profitability with CRU assumptions to 12%. This is only for the volumes that corresponds to aluminum metals REDUXA 3.0 ambition for 2030. If we were to include those premiums also on the additional 2.4 million tons that has the same footprint in bauxite and alumina, then this would lift profitability way above these levels. If you use these scenarios and the greener premium assumptions, then the free cash flow available ranges from NOK 1 billion-NOK 3 billion, and we are dependent on either positive market developments or a higher share of greener premium sales to materialize.
While we have reduced the risk of operational disruptions and specific country risk over the latter years through asset integrity improvements and being a better neighbor, these are still present in the portfolio, and we need to continue to manage this well. Being in Brazil, we are also exposed to a volatile regulatory landscape. If we move to aluminum metal and metal markets, the picture changes significantly. Aluminum metal accounts for about 36% of Hydro's capital employed and 8% in metal markets. Despite the challenging markets we have been through, the last 12 months, ROACE reached 18%, and if we adjust it for improvements, commercial growth, and green premiums, we see that moving towards 19%, significantly above return targets.
Metal markets, as a separate reporting area, has also delivered returns of 14%, almost double their return target of 7%-8%, due to good results and profitable growth in recycling combined with a relatively small share of capital employed. Going forward, in different market scenarios, the combined ROACE for aluminum, metal, and metal markets is ranging between 16% at last 5-year average, to 22% using external long-term assumptions. The free cash flow ranges from NOK 9 billion-NOK 12 billion in the different scenarios. We see new recycling growth opportunities as a significant positive upside driver. In addition, positive market and macro developments could be a further uplift to the potential, as several analysts believe in aluminum prices significantly above market and CRU levels.
On the downside, we are especially exposed to a strengthening of the NOK and also a flattening power cost on the global cost curve. We have also seen some of the negative effects of regulatory changes over the latter years, referring to the changes in the Norwegian CO2 compensation scheme, which visualizes the regulatory risk in the aluminum metal portfolio. Extrusions accounts for 23% of Hydro's capital employed, and since 2020, Extrusions has delivered a ROACE of more than 10% above the return target of 8%. If we look at the last twelve months, a period with double-digit demand reductions, Extrusions has represented a ROACE of 9%, and the identified improvement measures will lift the ROACE from 9% to 16%. Free cash flow in this scenario is NOK 8 billion.
Further upside for Extrusions can be achieved through higher growth, portfolio changes, and increased improvement drive, where digitalization represents large potential across the sizable extrusions portfolio. On the risk side, in addition to market and operational performance, the key risk for extrusions is inflationary pressure and the current macro uncertainty. Finally, we move on to our energy business area. This year, we present energy classic and Hydro's share of Rhine Joint Venture separately, emphasizing the value creation potential of the new Rhine ownership structure. Once the transaction is finalized during 2024, the Rhine Joint Venture will be reflected on Hydro's balance sheet as an equity accounted investment. Energy as a business area has around 10% of Hydro's capital employed, and if we look at Q3 last twelve months, energy has delivered an EBITDA of NOK 3.9 billion, which is above the average since 2018.
If we normalize and put in other effects, like lower price area differences, reversal of loss on buyback contract with aluminum metal, and reversal of costs related to the new energy areas, we get to the 4.2. We also have two market scenarios based on 2030 forward prices, or last five-year average, which illustrates a downside with EBITDA between NOK 3.3 billion and NOK 3.7 billion, and corresponding free cash flow of NOK 1.6 billion-NOK 1.8 billion. For the Rhine Joint Venture, we target a 0.5 pro rata adjusted EBITDA based on a self-sufficient financing model. Further upside in the traditional energy operations could come from additional growth opportunities and stronger energy markets on the back of increasing demand for renewable energy.
Batteries are not included in the numbers here, and there we target 3x return on invested capital as an upside coming on top of the potential you see here. On the risk side, energy markets, as always, remain very volatile. So I will end my presentation with our distribution to yourselves, our shareholders. From 2015-2022, we have delivered on the policy, and we have returned an average dividend yield over the past seven years of 4.5%, lifted in 2021 to 9.9, and 7.7 in 2022, which reflects the significant distribution on top of our 50% of adjusted net income policy. These distributions also stood out in a peer context, which is evident looking at the dividend yield versus peer growth.
For 2023, we aim to abide by our policy and our target adjusted net debt level at the end of the year of NOK 25 billion, which is up a couple of billion from the NOK 23 billion we lost last year, as we see that the current earnings don't reflect high cycle earnings anymore. Based on how the fourth quarter currently looks, based on the externally available information, this results in a shareholder distribution which ranges from 50%-60% of adjusted earnings per share from continuing operations. Additional distributions above 50% could come as extra dividends or share buybacks. For Q4, the following items are expected to impact our adjusted net debt. We have EBITDA for Q4. We are guiding for stable operating capital. We have high tax payments in the fourth quarter, as we have had low tax payments year to date.
We have the remaining part of our CapEx budget, and we have the Alunorte proceeds, minus accruals for performance adjustments and indemnities to the transaction that need to be booked at closing. We also have our ongoing share buyback program. When we look at the outlook for Q4, and we adjust for these items, we get a 50%-60% distribution based on targeting NOK 25 billion in adjusted net debt at end of year. Final distribution for 2023 will be proposed at the release of our fourth quarter results in February 2024, and proposed approved by the Annual General Meeting in May 2024. With that, I would like to welcome Hilde back on stage for her final comments and our last Q&A. Thank you.
Thank you, Paul. It has been an exciting morning for us as corporate management board to present our updated strategic direction for 2030. However, all good things must come to an end, also, the capital markets day for 2023. To wrap up, let me try to argue why invest in Hydro. The megatrends are pushing demand for aluminum, and in particular, demand for low carbon aluminum. And Hydro is well positioned here with the best upstream decarbonization roadmap, as well as a superior recycling portfolio, which is set to grow going forward. And as we have talked about, we expect an annual value creation potential from green premiums toward 2030 or up to NOK 2 billion, NOK 2 billion.
To capture this opportunity, we aim to expand and grow our greener offerings through a large portfolio of profitable growth projects, particularly in extrusion as well as in recycling, giving us the opportunity to strategically allocate growth capital to the parts of the value chain we believe will make returns more robust in the decades to come. But it's not only about growth, it's also about optimizing and utilizing the portfolio we have today. For this, we have a concrete decarbonization pathway, which will take us to zero. And in parallel, we will work to shape the market, creating a willingness to pay a premium for premium green products. And then Hydro is in a robust position. We are low on cost, and we are low on emissions on the emission curve compared to our peers already today.
And with also the increased improvement programs that Paul just talked about, we continue to position ourselves to be robust on the cost curve. Combined with our long-term renewable power contracts, we are in a position enabling us to handle the short-term market downturn, which we experience now, without losing sight of the long-term opportunities. Supported also by a solid financial framework, ensuring financial strength and flexibility, we can do just that, while at the same time enabling competitive shareholder distribution and remaining true to our dividend policy, as well as the capital structure target that Paul just talked about. We have delivered strong relative shareholder return since 2020, and I'm confident that Hydro is uniquely positioned to continue generating value in this new reality that we are facing.
I look forward to continuing our legacy of building industries that matter by pioneering the green transition and creating value for all our stakeholders. With that, we conclude the Capital Markets Day for 2023, but we now open for a final Q&A with Paul and myself.
Good. If you have a question, raise your hand.
Sri Mahavaran from RBC. Thanks. I have two questions on the CapEx. The first question is, if I look at your year-to-date numbers for 2023, I see a difference between the investments and the cash CapEx to the extent of NOK 2 billion. So for 2024 and beyond, I can see the NOK 15 billion guidance. So can you give us a steer on what the cash CapEx is going to be?
Yeah. So, I guess we have three CapEx definitions. We have investments, CapEx, and the cash effective CapEx in the quarterly investor deck. For 2023, on the CapEx side, cash effective, that should be quite similar between guidance and what we see coming through as cash flows. We were at NOK 23.5 billion guided at the Q2 results, and then we're down at around NOK 22.5 billion with the postponements of some Rein or postponements of cash flows on Rein projects, and also others moving into next year.
The gap between those and the investments is typically asset retirement obligations and the larger lease expenses, and if we look into next year, yeah, I, we don't necessarily plan for making asset retirement obligations. There's always a potential of this happening, but at a starting point, there shouldn't be any big gap there. We had some big lease contracts which were signed this year. There probably will be some leases next year, but not to the same amount as we are aware of now. So they should be closer in 2024 than what they have been in 2023.
Okay. So, the second question is on CapEx as well. I see the long-term sustaining CapEx guidance has moved from NOK 7 billion to NOK 8 billion. How much of this is purely for Forex impacts?
All forex and inflation, it comes from that part. If you add them both together, you actually get a higher number than the NOK 8 billion if you compare back in time. But as John has mentioned earlier and others have said, we do make changes which reduces the need for CapEx also on the sustaining side, and we are in a period with quite a lot of multi decade-type investments like pipeline, like opening the new M5 mine in Brazil and the like. So we should see some improvement also.
Thank you.
Thank you. Bengt Jonassen , ABG. One question on your bridge there, Paul, where you included NOK 0.7 billion on the fuel switch, whereas on your BNAs slide, you're talking more about NOK 160-NOK 190 with a full year effect of 2025. Does that mean that there is a 1.3 to... yeah, NOK 1.0-NOK 1.3 billion effect for 2025 as well?
So, this is also a somewhat technical answer. If you look at the fuel switch project compared to the prices we've had on fuel oil for, for example, the last 12 months, then we're talking about this $160 million improvement. We said at Q3, if you looked at spot prices for fuel oil there, it would be closer to the $190 million. And then in the improvement program we include a fuel switch effect, which is based on the 2021 margins. We do that for all improvements, so that improvements don't swing up and up and down. And then we had to add $0.7 billion into the bridge to get up to the full effect based on last 12 months.
Agreed.
Of course, 2024, 2024 is not full year effects. I guess you use around half a year to ramp up, so you'll have a bigger impact in 2025, but that should be between $160-$190.
I think I'm next. Kenneth Sivertsen from Pareto. Just to clarify on the dividend you mentioned here, it's linked up to the NOK 25 billion in net debt. Does that include the Alunorte transaction?
Yes. So, if you look at where we were towards the start of the year or the middle of the year, the Alunorte transaction contributed quite a lot on top of 50% of adjusted net income, and gave a potential for a larger dividend distribution than what you see now. Then as you moved through the years, you've had the cash flows being lower and lower due to the falling market conditions. And you've also had the CapEx increasing in NOK terms. Basically, LME prices are falling. So, that has eaten up a lot of the potential for larger distributions from the Alunorte sale.
You could rather say that the Alunorte sale has been used to finance the transactions and the acquisitions that we've made during the year compared to the starting point. So everything we have is included in that NOK 25 billion.
Okay, thank you. On moving on to the green premium of NOK 2 billion, you're mentioning at current prices you see in the market now. I assume then that that does not include that the CO2 getting a cost, a real cost, if you understand?
Well, it doesn't. It includes, it's based on our expectations of the CO2 price on the forward curve today. And, depending a bit on how you think about this, it could be higher or lower going forward, based on how much it's worth for someone to take out their CO2 cost. But as both Trond and Paul said, we don't give the exact greener premium on a customer-by-customer basis, because this is a negotiation per customer. And this is based on what we see the current CO2 price being and what the potential in the portfolio is. So this can swing going forward.
I guess there's more scenario where CO2 prices is higher than lower. But we want to choose a conservative approach.
Thank you.
Yannis Mastoulas from Morgan Stanley. A few questions from my side. The first on BNA. You show this profitability roadmap, and this division really stands out in terms of really struggling to be above the cost of capital across different alumina price scenarios. You show even in an optimistic scenario, you are at 12% versus cost of capital of around maybe 10%, while extrusions and aluminum metal are far ahead. So that includes the green premium, that includes fuel switch. Is there anything more you can do in that business? Because it's already in the first quartile of the cost curve, including the fuel switch. What else can you do there to make it more robust?
Well, I would say that Jon's improvement ambitions, as they stand today, are ambitious. So, they go through the full portfolio. As you know, fixed cost is not a huge element in bauxite and alumina business. It is the raw material inputs, but we're working on both of them. So the changing the energy carriers going forward is by far the biggest element together with greener premium. But, BNA is also an area where you could have quite a significant potential from digitalization going forward. When we ran this full potential exercise across the company, BNA stands quite a lot out with potential on top of what is included in existing improvement program.
As I mentioned earlier, I hope we will be able to to stretch improvements going farther, but moving improvements to the tune of 6% ROACE, we will not be able to do. In order to deliver above cost of capital, we need the market to reflect the cost of producing alumina, which is it not doing to a full extent today.
Very clear. Thank you. The second question is on the 2 billion NOK contribution from greener products. You show on the slide 2 million tons of primary, but in the past, you indicated that only 1 million ton of primary will be branded as REDUXA at the material. So on this 2 billion NOK, do you assume that the full primary, excluding, I guess, Qatalum?
No, we assume around 800,000 tons in that bridge.
How much, CIRCAL?
CIRCAL, it's around half a-
90 up to the 2000.
Yeah. Mm-hmm. Yeah.
Great.
250, 300.
Great, thank you. And very last one from me on the Alunorte transaction. You mentioned some adjustments to the final closing price. Could you give us an indication what was the actual cash contribution?
Yeah, as you may remember, when we announced the transaction back in the first quarter or in the second quarter, we had, we said that there were certain performance related elements up to the tune of $55 million, which would reflect performance in the refinery for a certain period. As you can see from the results, the cash performance hasn't been where we would like it to be, so there's a high likelihood of that having to be paid out from us as we view the market today.
Great. Thank you very much.
... Magnus Rasmussen, SEB. A question on the CapEx and the consistency between that and your targets for 2030. So you have some EBITDA targets for 2030, which implies quite a big uplift, uplift in both probably 2029 and 2030. And then you have the CapEx guidance of NOK 15 billion through 2028. Should we expect NOK 8 billion long-term CapEx only in 2029 and 2030? So my question is: the CapEx guidance that you have here, is that enough to reach those targets, or should we expect a higher level also in?
Yes. If you look at the ranges on the targets, they go from a low to a high point. If you look at the CapEx slide, we give a base CapEx, and then we give a potential for higher target CapEx levels if there is support in the market. So in order to reach those targets in 2030, you would need to invest on the higher part of the CapEx range to get the higher part of the EBITDA. If you only invest at the lower part of the CapEx range, you can get the higher part of the EBITDA, but that would need to be based on different market assumptions than what we're seeing today.
And, uh-
The NOK 8 billion is a sustaining CapEx figure. So we... There have been a couple of years where we've been very close to only running on sustaining CapEx, for example, in COVID, and the like.
Mm-hmm.
But as long as we have good growth opportunities in the portfolio, we would most likely be running at some form of return-seeking level, but we don't give a guidance on it because it's very specific on what you see in the short to medium term.
The FX rates for the CapEx guidance?
They're based on quite close to spot now, I guess. So, they have moved quite a lot from the rate we used at the Capital Markets Day last year. So, are we around 11 on the NOK to dollar? Yeah.
Thanks. A final question, just to clarify on dividends. Should we... Just so I understand you correctly, the dividend in NOK millions, will that be the same as the difference between NOK 25 billion and your reported net debt as of year-end 2020?
No, it will be the difference between the NOK 25 billion and the adjusted net debt.
Yeah-
And the net debt-
the reported adjusted net debt.
Yes.
Yeah.
Yes.
Thank you.
We actually need to conclude there. We are running a bit-
More questions we...
That's fine.
But there will be more opportunities to ask questions during roundtables. So, but thank you all so much for joining us today, and hope to see many of you at the roundtable starting now at a quarter past. Thank you.
Thank you.