Welcome to Hydro's Capital Markets Day 2022. We will first start with a company update by our President and CEO, Hilde Merete Aasheim. Following Hilde, our EVP of Energy, Arvid Moss, will go through how we leverage our energy capabilities and our portfolio. We will have a Q&A session and break before continuing at 9:35 A.M. with an update on our ambitious pathway to net zero and sustainable value creation with EVP of Bauxite and Alumina, John Thuestad, EVP of Aluminium Metal, Eivind Kallevik, EVP of Extrusions, Paul Warton, and EVP of Corporate Development, Trond Olaf Christophersen. This is followed by a Q&A session and a break. After our break, we will hear from our CFO, Pål Skildemo, who will give an update on Hydro's financial priorities at 11:20 A.M., following by another Q&A session. Following the presentations, we hope you will join us for lunch at 12:30 P.M.
After lunch, there'll be round tables for aluminum metal and recycling at one, and sustainability and path to net zero at two o'clock. Before welcoming our CEO, Hilde Merete Aasheim, on stage, let's start with a video. Thank you.
It all starts with energy, and that's how it started for us, by taking renewable energy to power industrial production that more than a century ago helped feed the world. We know energy. We've been harnessing it for more than a century, putting it to good use in everything we do, making the most of it, making sure that what we take is not lost, that it is kept in materials that are given new life over and over again. By harvesting energy from an endless source, a source that helps us tread more lightly on this planet, we give all products a better start, a better start in their life journey to drive progress in a more sustainable way. We are still innovating and still investing in a greener future and technologies that provide solutions to climate change, urbanization, and electrification.
We have always built industries that matter, industries that lead the way to power progress, to power development that answers the demands of a growing and ever-changing world. As our purpose remains, our story repeats itself. Our future is bright, and we will lead the industrial innovation for years to come.
Good morning, and welcome from me as well. Thank you for joining Hydro's Capital Markets Day 2022. War in Europe, skyrocketing energy prices, spiking inflation, global economic slowdown. Who would have imagined these headlines to be a reality one or two years ago? The past year has shown us how fast things can change in our business environment and how important it is to be robust and resilient. During the past three years, we have taken important step to make Hydro more robust, enabling us to create value in strong as well as weaker markets. As we now face a more unpredictable global economy, I find great comfort in knowing that Hydro is well-positioned to navigate through turbulence in the short term, but without losing sight of our strategic positioning for the long-term opportunities. Hydro has always been in business for a reason.
When founded in 1905, our objective was to resolve one of the world's biggest challenges at the time: to feed a starving Europe and to end world hunger. Today, we are again at a defining moment in history. In the midst of the current geopolitical and macroeconomic landscape, the world need to accelerate the transition to combat the climate challenge. This year's Capital Markets Day is therefore not only about how we are executing on our 2025 strategy, but also how we will continue to create long-term value for all stakeholders in the years to come, and to be part of the solutions in terms of the transition towards a more just and sustainable society. Let us first look at what we have achieved during the last year.
In 2020, we set a clear ambition to lift profitability and drive sustainability. This last year, we have passed a number of milestones on our journey towards 2025 strategy, strengthening our position in low carbon aluminium, as well as growing in new energy solutions. The basis for achieving our targets is our people. We have a fantastic workforce in Hydro with 31,000 highly skilled, engaged, and motivated employees around the world. That is why health, safety, and well-being of our people is on the top of our strategic agenda. Coming out of the pandemic, I'm very happy to report today that we have had the best year ever when it comes to number of total recordable safety incidents. In this area, we can never rest. Ensuring a safe working environment is a continuous effort which need attention by everyone every day, at every shift.
I strongly believe that it is a direct link between the health, safety, and well-being of our people and progress when it comes to our performance. For 2022, we have the target of NOK 7 billion in terms of improvement compared to 2018, and we are well on track to deliver on that by the end of this year. We are slightly behind on our commercial ambitions, as these are, to some extent, market-dependent, and the current environment is more challenging. However, we are ahead when it comes to the positioning and margin contribution from our greener products. It's really encouraging to see the traction for our low carbon products in the market and the premium also that we now achieve on these products. To recycling. In 2020, we set a target to double the use of post-consumer scrap by 2025.
Following this, we have allocated capital and started executing on several recycling projects. I'm happy that we are well on track to meet our targeted position with or without Alumetal, the Alumetal transaction, which is still awaiting competition clearance. To Extrusions. Here we have grown together with the customers, particularly in the automotive segment. Our local expertise, combined with a strong local and regional price system, both in Europe and in the U.S., are positioning us very well in the market these days. To the second pillar of our strategy, which is to grow in New Energy. Also here, we are progressing well in both Hydro Rein, Hydro Havrand, and batteries. Over the last one to two years, Rein has delivered a significant progress on building its project pipeline.
Although we have not completed a capital raise for Rein, we are still in an active process to raise the necessary capital to develop Rein. We stick to the original position of developing Rein capital light in Hydro with an attractive return on equity. Rein has also developed and undertaken attractive renewable projects in Brazil, supporting our operations in Alunorte in Bauxite & Alumina and Albras in aluminum metal. At last year's Capital Markets Day, we presented our renewed climate ambitions. Also here, I'm happy to report that we also in this area are making good progress, particularly related to the fuel switch in Brazil, and that we are well on track to deliver on our ambition of reducing emissions by 10% by 2025 and by 30% by 2030.
We have delivered strong returns with a ROACE of 27% over the last twelve months, well above our target of 10% over the cycle. This is a result of a strong cost position, our long-term power contracts, favorable currency, as well as high prices in aluminum, as well as energy. Early this year, we could distribute NOK 6.85 in dividend per share based on the 2021 earnings, as well as introducing a first share buyback program since 2008, targeting up to NOK 2 billion in buybacks. Based on expectations of 2022 earnings, we aim to distribute between 50%-70% of adjusted net income as a combination of dividends and share buyback. Just as important as our ability to deliver absolute returns is our ability to deliver relative re-returns.
On this slide, we have compared ourselves with the relevant peers within our industry, where you can see that we have regained our position and have in total over the period outperformed the upstream as well as our downstream peers. This is our agenda every day: realize continued value creation through good operational and strategic positioning of Hydro. As we look forward, we believe that there is two mega trends in particular that will have a great impact on our business environment, with both of them posing risks but also opportunities. The world is standing at the geopolitical and geoeconomic crossroad.
What we see around us as the contours of a new geopolitical reality characterized by increased rivalry between powers, weaker global institutions, a decline in trust, and increased polarization within societies. It is reasonable to believe that this new and more unpredictable geopolitical landscape will have a significant impact on the global economy, affecting trade, economic cooperation, supply chains, and global development. The pandemic was an early warning of the vulnerability in our global supply chains. I believe that the Russian invasion of Ukraine has amplified this impression for government and industries alike. We now see a shift in attention where proven long-term supply, security of supply, affordability, and access to energy, minerals, and strategic materials will become an increasingly important strategic advantage. Simultaneously, society is putting sustainability higher and higher on the agenda, with expectations towards industry no longer only based on us contributing to the change.
We are expected to drive change, not by a few stakeholder groups, but by all: politicians and regulators, customers, employees, and among investors. Likewise, the current energy crisis has demonstrated how crucial access to affordable renewable energy is for society and industries to succeed with the green transition. With the market increasingly focused on how products are made, driven by a trend towards supply chain transparency, we expect new values to be given to the ESG front runners. What we see coming out of Brussels, Washington, D.C., and Beijing is legislation and ambitions aimed at securing access to strategic materials and increasing energy independence through targeted investments in renewable energy. Finally, also increasing focus on the environmental and social sustainability.
The EU has been a first mover, but we have seen that they seen last year that both U.S. and China are now positioning themselves towards resource resilience and new growth opportunities on the shoulders of the green transition. This expected race for green positions between the world's economic power is good news for climate and environment. It will also have a positive impact on demand for low carbon products and services, posing great opportunities for first movers. The transition towards a net zero economy is expected to be a key driver for aluminum demand towards 2030. We expect a global growth rate of semis of around 2.8% per year, with 50% of demand coming from the transport and electrical segments. This is supported by the transition towards electrical vehicles and increased demand for renewable energy.
With EV adoption growing especially strong in Europe and China, while solar panels and wind farms are being built everywhere. Reaching net zero on the global scale by 2050 will require unprecedented investments in nuclear energy solutions and infrastructure, which in some offer an upside exceeding these figures. One potential drag could be the struggling construction sector in China. Chinese construction consumes 15% of all aluminium globally, representing a major downside if it were to come to a collapse in the property market in China. Adding to the positive side, we also see great potentials for growth in areas like packaging, where more and more consumers are moving away from plastic and towards aluminium.
Behind the expected 2.5%-2.8% annual growth in aluminum semis demand, there is a big difference between recycling and primary, with recycled aluminum being increasingly important to meet this anticipated growth in demand, expected to grow at around 5.4% per year. In China, large amounts of scrap are being generated from the strong growth in construction over the past decades, and they are investing heavily in recycling. We see the same in Europe and North America with increasing investments in recycling as a more sustainable and energy-saving method of serving a growing market. Even with strong growth in recycling, more primary aluminum will be needed in the years to come to meet the expected demand growth to balance the market. Based on current announced projects, which are likely or probable to be built, there is still a supply gap.
This supply gap may be even larger in sub-segment in the market, like low carbon aluminum, as we expect a large share of the customers supplying the green transition, like automotive and electrical, to be carbon conscious, demanding greener aluminum. The likely and probable projects coming in the next eight years outside China are anticipated to be driven by growth from Asia, Indonesia, and India with high carbon footprints. This represents an opportunity for us to fill the gap in terms of low carbon aluminum. At the Capital Markets Day two years ago, we presented our strategic agenda towards 2025, aiming to strengthen our low carbon position to grow in new energy.
This strategy was based on an analysis of how our capabilities matched the megatrends we saw around us: decarbonization, electrification, circular economy, and the opportunities we could seize by leveraging our competencies as well as competitive advantages. Many things have changed in our surroundings since we presented this strategy. However, the underlying megatrends favoring low-carbon aluminium, renewable energy, and energy solutions are even stronger. I will make the argument that our strategy is even more relevant today than it was back in 2020. During the past year, highly motivated by the strengthened relevance of our strategic direction, we have made considerable progress. Let's spend some time now on reflecting on what we have achieved, how this has positioned us, and what we plan going forward. Let us start to look at our cost position upstream.
Through the last 10 years, the aluminum industry has suffered the consequence of a flat industry cost curve, which has limited the ability of attracting margin generation for a large part of the cost curve. This has changed over the last year, and particularly during the last year, mostly driven by increasing energy prices, high value-added premiums, and also growing premium for low carbon aluminum. The price for alumina and aluminum is typically set around the 19th percentile. With a steeper cost curve going forward, this should allow for better margin generation compared to the last decade. If we start with alumina, we are today positioned on the 30th percentile on the cost curve, with Alunorte producing at nameplate capacity with a $150 per ton distance to the 19th percentile.
Following our ongoing fuel switch efforts in Alunorte, this would increase the margin potential to $140 per ton. A global carbon regime would steepen the cost curve further and improve the relative competitive position of Alunorte, as well as increase the margin creation potential. In aluminium, we are well positioned at the 17th percentile of the cost curve with a $1,000 per ton distance to the 19th percentile. This is driven by attractive long-term power contracts in most smelters and high value-added premiums, including greener premiums, especially in Europe. Also here, a global carbon regime would steepen and improve the relative position further. The biggest competitive advantage for Hydro is our renewable power and the large portfolio of long-term power contracts.
We have a favorable position, both with regard to our robustness in the current situation as well as in the longer term, with long-term access to affordable renewable energy across 80% of our global smelter portfolio, which you see to the right on the slide. This differentiate us, as you can see from the pie, where our European peers need to cover a large part of their energy demand in the spot market, or are hedged through medium contracts which expires in the coming years. Still, power prices also increasing in Norway, making sourcing post 2030 important. Through Hydro Energy and Hydro Rein, we are positioned to contribute to add new renewable capacity dedicated with PPAs to our operations, provided the right regulatory framework in Norway that is in place and efficient permitting by authorities.
In Brazil, as I already mentioned, Rein has successfully strengthened our position in low carbon alumina and aluminum through the long-term contracts to both Albras and Alunorte from wind and solar. In addition to working on securing power for the long term, at competitive price levels, we are continuing to address the other levers of the cost curve through our improvement program and commercial activities. We have a long track record now of delivering ambitious improvements. As mentioned earlier, we have delivered on our improvement ambitions up to now. The NOK 7 billion is within reach for this year. I'm happy to report that we are increasing our improvement ambition for 2025 from the original target of NOK 8.5 billion up to NOK 10 billion by 2025, which includes a rebasing and increased scope effect of around NOK 700 million .
We even go by on 2025, where we have now set a target of NOK 11 billion by 2027, an additional NOK 3.5 billion in the coming years. I'm sure you will ask, "Where does this improvement comes from?" In all business areas, we use the business system as a basis for our improvement work. It is a structured, systematic way of working, looking for ways to improve our processes, and working more effectively. Where we also engage our people in a continuous improvement process. I have traveled around in the company after we could start to travel again after COVID, and I'm really impressed to see all the initiatives that is ongoing in all parts of the Hydro organization, and that I'm really proud of.
This improvement in initiatives result in higher productivity, improved consumption factors, lowering both variable and fixed costs through thousands of different initiatives accumulating to the NOK 11 billion target that we have set for 2027. In 2020, we launched also our commercial ambitions, and we see that they are also bearing fruits. With traction on our greener products, better product mix, higher margin, and market share growth. Towards 2027, we raised our commercial ambitions by NOK 500 million, up towards NOK 3 billion, an additional NOK 1.4 billion in the coming years. To recycling. Recycling will play a vital role in the transition towards a low-carbon economy, and it's a key component of our strategy to strengthen our position in low-carbon aluminum.
We expect 35%-40% of the estimated demand increase towards 2030 to be covered by post-consumer scrap. Profitability in recycling has been strong over the latter years, which you see on the slide, much supported by the record high billet premiums observed in 2022. This is expected to normalize in 2023 and the years to come, yet still at very attractive levels compared to the cost of capital. Recycling represent an opportunity for new profitable growth, while at the same time reducing the carbon content in the products we bring to the market. The return on investments made in recycling lately typically range from 15%-30% internal rate of return. This is driven by our strong capabilities across the value chain, Eivind will talk more about this later today.
If the announced Alumetal transaction goes through, we will exceed our original target of doubling the use of PCS, increasing our PCS usage to 670,000 compared to our original target of 480,000-630,000 tons. Encouraged by strong margin and higher demand of recycled aluminum, as well as attractive returns, combined with the project pipeline meeting our existing targets, we aim to further increase our ambition to use 140,000 tons more PCS towards 2027, with a corresponding uplift of EBITDA of NOK 500 million in 2025 and additional NOK 500 in 2027. Let me turn to Extrusion, which is another exciting growth area in Hydro.
The team in Extrusion have worked really well to make the business area more resilient through focusing the portfolio more toward to the high growth segments and where we have a competitive advantage, including automotive, system businesses, and commercial transport in the U.S. At the same time, we have restructured our portfolio, closing 13 plants during 2019 and 2020, and divested five plants. On the top of that, we have realized cost savings related to SG&A and procurement savings. We are allocating more capital to Extrusion to add capacity in attractive segments going forward. This includes strengthening our flagship plants in the portfolio, for instance, Nenzing in Europe and Cressona in the U.S. We will deliver close to NOK 1 billion in additional EBITDA towards 2025 from our growth projects compared to 2021.
Being the business area closest to the end customers, we see a strong pull from sustainable offerings and target margin uplift and market share gains through our offering of greener products. Extrusion represent the greatest contribution to our commercial ambitions. Moreover, we are creating close looped with customers and improving footprint through recycling growth. In sum, Extrusion have a robust platform for further shaping the market and delivering on our target to deliver NOK 8 billion in EBITDA by 2025, given that the markets develop according to the CRU market forecasts. To Energy. The value contribution from the Energy operation and markets has grown significantly over the latter years. Over the latter 12 months, Energy's EBITDA has been NOK 5.4 billion.
If you look at the hydropower portfolio only and normalize production to 9.4 TW and take out the price area differences, this business will generate some NOK 3.5 billion in annual earnings going forward. An additional NOK 400 million in commercial contribution will come on the top of this if we deliver the average over the last three years. We are estimated to deliver significantly above this in 2022. Let me comment on the new energy units. Hydro Rein has made significant progress during the last year. They are now in execution with four projects, three in Brazil, one in Nordic, and contracted revenues from these projects, from these PPAs amount to approximately $2.7 billion. EBITDA contribution in 2026 from these projects are estimated to approximately NOK 400 million.
As I've already discussed, availability of renewable power is more critical than ever for Europe and in general to meet society's climate challenge. For Hydro, Rein's contribution to bring forward more power production is also critical. Havrand, Hydro Havrand is in a learning and early phase development, establishing, owning, and operating green hydrogen facilities. I'm excited that we are now maturing pilot project in Høyanger, where we will demonstrate that we can use hydrogen to replace natural gas in the cast houses to deliver close to zero carbon aluminum through recycling of post-consumer scrap in Høyanger. Long-term, making the fuel switch from natural gas to green hydrogen will be important for our decarbonization of our cast houses and recyclers across Hydro and operations also in Alunorte.
The battery unit is growing with our recent investment in Vianode, remaining within its allocated capital frame in total NOK 3 billion in 2020, in the period from 2020 -2 025. Over the past year, we have matured a more focused battery strategy, exploring opportunities within sustainable battery materials. We see that Europe is short on many upstream materials for cell manufacturing production and is a key target for EU to become more self-sufficient. Hydro's competence and capabilities in the processing of and recycling of battery materials are valuable and highly interesting for partners. By 2025, the battery unit is targeting a three times value uplift on equity invested.
An important part of our positioning going forward is our ability to demonstrate not only ambitions and targets related to sustainability, but real deliverables which has a positive impact for the climate, for the environment, and for a just transition in society as a whole. As I said in my introduction, we are well on track to reach our CO2 ambitions related to Scope one and two by 2025 and by 2030. In a minute, I will announce our new Scope three targets. However, it is important that we also deliver on our ambitions related to environment and the societal aspects of sustainability. Our environmental ambition focuses on protecting biodiversity, as well as reducing our environmental footprint with a particular focus on eliminating landfilling of waste in the long term.
We are well on track on our one-to-one reforestation ambition and are firmly committed to our ambition of achieving no net loss biodiversity in new projects in Hydro. In 2023, we will also rehabilitate 100 hectares in our legal reserve. This is degraded land not impacted by Hydro's operation and comes in addition to the rehabilitation activities in the mining operation under the one-to-one ambition. Just as a reference, in 2023, we will rehabilitate 165 hectares as part of the one-to-one rehabilitation. When it comes to eliminating landfilling of waste, it's great to see the progress using the pioneering dry backfill methodology in our Paragominas bauxite mine, reducing the need for new permanent tailings. At Alunorte, we are working with partners to identify opportunities to reutilize bauxite residue in other industries.
One partner is Wave Aluminium, who has developed a process for extracting iron ore and other metals from bauxite residue. Following years of lab testing, we will now work with Wave Aluminium to build a pilot plant at Alunorte to test this in full industrial scale. When it comes to social sustainability, our ambition is to improve the lives and livelihood in the communities where we operate throughout the world. We have focused particularly in Brazil, where we have made significant social investments, building social centers in Pará and a technical school in Barcarena. I was recently visiting Brazil, I was proud to see the social centers where the most vulnerable members of the community are able to learn skills for future employment and have access to basic services. We continue to support the Sustainable Barcarena Initiative and programs for local entrepreneurship, education, health, and environmental initiatives.
Scope three targets. For many companies, including Hydro, Scope three emissions can be significantly larger than Scope one and two emissions. Our upstream Scope three emissions are around 22 million tons, twice the size of our Scope one and two emissions, which were at 11.3 million tons in 2021. Our upstream Scope emissions are dominated by sourced raw materials, especially metals, including aluminium to our aluminium metal business, as well as Extrusion. Setting upstream Scope targets is in line with Hydro's climate strategy on greener sourcing, and it's important in order to reduce the carbon footprint of the products we deliver in the market. Reducing the footprint from purchased raw materials, including metals, will be important for reducing our Scope three emissions. Increasing the post-consumer scrap will also be important in this context.
In addition to the planned fuel switch and decarbonization of Alunorte will lead to less emissions from production as well as transportation of fossil fuels. Towards 2030, we aim to reduce our upstream scope three emissions per ton aluminum delivered to the market by 30%. This target combines the metal delivered from Aluminium Metal as well as Hydro Extrusions. Our total upstream scope three emissions, Hydro aims to reduce our emission by 15% by 2030. The lower target on total emission is the result of expected growth towards 2030. Let me add all our growth and strategic initiatives as well as improvement targets all together into a full value potential overview and the profitability roadmap in the next five years.
Here we have excluded the value from the new energy areas until final decisions are made in terms of ownership stake. The last 12 months, we have generated an adjusted EBITDA of NOK 41.5 billion and the corresponding ROACE of 27%. We are currently experiencing market headwinds. If we correct for that using roughly today's market forward prices, this brings us down to an EBITDA level of NOK 20 billion. If we then add the improvement programs, commercial ambitions, and recycling growth, then we move back up towards NOK 30 million, to NOK 30 billion and a ROACE of 16%. There are of course elements which can pull in both directions here. However, with the current market prices and our planned improvements, our 2027 scenario looks rather robust.
In sum, I believe Hydro has a unique position to create value in a new reality. We are robust enough to both navigate through the challenges we see in the short term while continuing to position ourselves for the long-term opportunities. First of all, we are a conglomerate of aluminum and energy competencies, with highly dedicated and skilled employees around the global organization. Our teams are currently working on a variety of paths to decarbonize our operations and bring greener products to the market to meet the future demands. Our technology roadmap will put us at the very front in the industry in terms of low and ultimately zero carbon aluminum. Based on our world leading downstream position, we also shape the market by developing creative, innovative, and sustainable solutions in close collaboration with the customers.
We are well positioned in attractive market segment that demand greener aluminum like automotive and building and construction. Our innovation and sustainability agenda is interlinked to our commercial agenda. We have one of the lowest carbon footprints in our industry already today, we have years of experience in recycling as well as energy solutions that we can scale and leverage, creating value for Hydro and society as a whole. Being part of the solution to the global challenge and a just sustainable transition. With that, I will give the word to Arvid to talk more about the opportunities we see in energy. Thank you.
Good morning, all of you. Russia's attack on Ukraine is fueling energy prices globally amid the fears of energy shortage, Europe is under severe pressure to get rid of its dependency on Russian gas. The Nordic region is heavily influenced by the European power prices. The European Union's response has in large been to increase its ambitions on renewables in energy supply, with the challenge for Europe being to build enough renewables power fast enough. New support mechanisms are developed to accelerate this transition. If you look at the graph to the bottom left, you see how European Union has increased its ambition when it comes to the part of energy that is supplied by renewable power. To the top there, you see how they also have increased their ambitions to reduce the CO2 emissions.
At the right hand, it shows how German and Nordic power prices, including, you see the effect of the recent volatility and increase since the gas shortage started to influence the power price. It is important to see through this crisis. In some years, prices are expected to normalize towards renewable levelized cost of energy. We have as an indication here, put at the bottom there, what do we think or what is the estimate for levelized cost of energy in the wind in the Nordics, which is EUR 20-EUR 32 per megawatt hour, and for Germany, EUR 24-EUR 44 per megawatt hour.
This is important because going forward, first of all, gas prices will come down, and together with the large amounts of incentivized renewable power production, this will over time reduce the power prices towards the level we saw before the invasion in Ukraine. It's important that the regions where we have abundant low-cost renewable resources will be attractive for energy-intensive industries, and also then mean that there are opportunities to enter new long-term PPAs. The Nordics is such a region, and that is so important for us where we have so much of our operations. It will Point one in the Nordics. Point one, it will make it possible as to enter new long-term PPAs. Second, it's a good place for Rein to develop its projects. Thirdly, green hydrogen production will require really low-cost renewable power to be competitive.
Certainly also the more energy-intensive part of battery production will have a good home where you see this kind of power prices that we can see in the Nordics. All in all, yes, we are at the crisis situation now, and security of supply of energy is critical, but we can when we come through this crisis, we will see still Nordics as a very, very good place to be to develop business. Let me then continue with, let's say, the market outlook for some of these areas. The energy crisis and the acute situation that we have in Europe, we see the shift to more and more renewables, electrification, and decarbonization industries. That is so clear for us that there are very big growth opportunities in all these areas.
You see here to the left that Sweden and Norway will have an expansion of the capacity in solar and wind, also 2.4 times until 2030. We see green hydrogen will have an explosion in estimated demand. We also see that when it comes to battery demand, it will increase substantially. Of course, this is only for electrical vehicle. We also see that batteries for storage now in stationary storage will increase as the world will need more also stability in the grid system. Many things will happen that will pull, let's say, these growth factors up. To a little bit of history with Hydro Energy. We started out in 1905, as you all know, with our power operations at Rjukan.
In 1991, we engaged into the Norwegian power market that was liberalized at that time. When we then acquired Vale's business in Brazil in 2011, we also established a unit down there. In 2015, Hydro Energy was established. In the period from 2016 and forward, we started to engage to in the wind power area, and we established a number of PPAs in the Nordics. In 2020, we then established the Hydro Rein as a business unit to take this further. The first battery investment was made in 2017, and as a consequence of our new strategy in 2020, we established the business unit batteries. As you know, the 2025 strategy, as also Hilde point out, really created a change for us. In 2021, we also then established Hydro Havrand as the last unit.
When you see now the development of these three units, they are not going all in parallel. They are developing on their own merits, and we will see later how this now also flows into the strategy and the execution roadmap. It is important to really now see what is it really that is inside the business that we have. We have in the Nordics and in Brazil, in total, we have 14 TWh of operation in Norway, of which 9.4 is equity power. We also see a growth potential in this area. Some of the investments will be in the Lyse Kraft DA, and we also see opportunities to expand our hydropower operations in Song with some 200 GWh. All these, of course, will add valuable assets in the hydropower flexible production area.
If we move to our commercial side, we are also among the largest PPA buyers in Europe. In Brazil, we actually handle the second-largest consumer portfolio in the country and are among the top 10% trading companies. It's a very important, let's say, unit to support our, let's say, Bauxite & Alumina and Albras plant in Brazil. As Hilde also said earlier, PPAs and long-term sourcing of powers is so important to stay competitive in the aluminum value chain. It creates predictable sourcing at competitive prices that is critical to really build stable operations in aluminum. The strategy that we have had in Hydro has served us very well for the last decade, and we also see now in the current crisis that it really protect us from big, big changes.
It is risk mitigating. We are through the strategy that we follow and the way we are going to work forward, it is our absolute clear ambition to avoid to be cornered and also to avoid big hits if there are abrupt changes. As also Hilde hint at, of course, the new geopolitical reality means that there will be faster changes. As you see at the bottom there, we have a very solid cost position in Norway when it comes to power operation and market operations. We have the lowest cost per megawatt hour. We also, as Hilde said, when we now look at the underlying earnings from energy, we talk about the level in. This is excluding the new units.
We talk about a level of roughly NOK 3.5 billion annually, and on top of NOK 400 million in the commercial platform. As you know, we are positioned with our portfolio that we can also take benefit from the price area differences, and then that I think also Paul will revert to later today. This is really the, let's say, the earnings platform from Hydro Energy if apart from the new business units. Let me say a little bit why is, let's say, the what we have in Hydro, why this is so important for the whole Hydro. I think Hilde mentioned it as well, but, you know, it is about the combination of what we have on operations and projects that we have built on for more than 100 years.
The way we have built also up the commercial positions, the way we take the now new sourcing opportunities out in the market, the way we take sourcing over to a profile that fits our customers and the internal customers is very important, that there are very few that really can sit both on the production side, the market side to optimize and really then serve the customers internally with the best energy solution. This is a important part of building a robust integrated Hydro. Lastly, which is of course extremely important, is the total insight that we sit with in Hydro Energy when it comes to the market, the grid, and the regulatory perspectives.
It is a fact that energy markets are very massively influenced by political regulation, especially when we also have to translate this into regulations to fit with the climate targets, then it's really important for us to understand where the more opportunities come and also where the threats come from. All in all, this leads us that we are a very good partner to decarbonize, contribute to the decarbonize Hydro, but we are also supporting other companies to really decarbonize in a good way. Just to show you a picture of the Nordics because this really where you see the full energy ecosystem, how it really looks like when you combine all the dots.
It's about what kind of power operations do we have, what kind of sourcing do we have, and what kind of offtake do we have. I mean, it's really an integrated ecosystem where we can sit and really see how do we optimize this from a commercial point of view and also to give the maximum value to our customers. Also the growth opportunities that will come in the Nordics when as I talked about, that's the best place really to build new onshore wind and from a cost point of view. The key really for Norway and Sweden will be how do we get the licensing process that is good enough, how do we ensure that we are, let's say, a good local citizen.
That is going to be important because it's a fact that this is the area where we could, let's say, really continue to build competitiveness for energy intensive industries and also new green industries. There is one thing that I really want to also pinpoint. We have for all this on the power side and also for carbon now, we have one common control center at Rjukan in Norway. That is where we operate and control all the power plants. We will for the future, that's where we will also manage the windmills from, the Hydro plants from. That's control center where we have the most competent people you can think about to do this. It's a fantastic asset for us. That's really something that's going to be very important also for the future.
I will make some updates on Hydro Rein and Batteries and Hydro Havrand. Hydro Rein is, as Hilde said, the vehicle to grow in new renewables. It is so important to secure attractive long-term renewable power to our operations. It's a key for Hydro's roadmap to net zero. Access to renewable long-term and predictable price power simply remains the core to our aluminum value chain, both to reach the commercial targets and to reach our sustainability targets. It is also very good that both the Nordics and Brazil will remain very good places to develop renewable power. Over the last two years, there has been significant progress in Rein, and Hilde mentioned both the PPAs and the value that we have created through that for the other businesses.
Let me also say a few words about how now the financials look for Hydro Rein. We have secured now 1.7 GW in the four projects until 2026. The investment from a Rein perspective will be around NOK 3 billion, the equity CapEx into these projects when you also take into account the farm down, done in Sweden and agreed in Brazil. That will yield a EBITDA pro rata in 2026, also NOK 400 million-NOK 450 million. The ambition towards 2026 is to have in operation or construction a portfolio of 3 GW, and then we have 1.3 GW on top. That will have an investment level of some NOK 2 billion-NOK 3.5 billion.
The EBITDA estimated from that on a pro rata basis is some NOK 350-NOK 450. In total, we talk here about an EBITDA level pro rata of NOK 750 million-NOK 900 million in 2026. We see that we can, we have a corporate cost in addition for Hydro Rein, which will be in the range NOK 100 million-NOK 200 million at the higher end of that range if we are continuing to grow at this approximate same speed. The 3 GW, just to say that is representing only if we succeed with that represents some probably a production of PPAs towards Hydro of some 6 TWh. You should remember that Hydro probably has a sourcing need towards 2030 of some 20 TWh.
It's only a fraction of, let's say, what is needed to really deliver to Hydro's own needs. It's important to say that this is seen from a Rein perspective, the financials you see here. We are in active process, as you know, to seek private capital from others to Rein. The allocation of the financing of the strategy, as well as the share of the EBITDA here, will therefore be pending the final solution and share owned by Hydro versus others. Of course, beyond the secure project, there will be flexibility in the growth ambition, and we will decide upon this with the new ownership structure when that comes in place. This is, as I said, this is the overview seen from the Rein business unit perspective.
It is a clear focus now from Hydro Rein when we have done, let's say, the large investments in Brazil to really now fuel bus-build Bauxite & Alumina with their L boilers and their business, and also Albras that we now focus more into the early-stage projects in the Nordics. These early development projects is really now key. It is we are developing them in a strategic partnership with the landowners, customers, and others to ensure that we also have the solid foundation to move forward. We also will sell more, let's say, services as part of this to ensure that we get the profitability right. To the left there, you see some of the projects that we are currently working on in the Nordics. Move to the battery strategy.
As Hilde also mentioned, we have now matured a more focused battery strategy that is really focused on sustainable battery materials. This leverage Hydro's capabilities, and it is establishes in positions in attractive markets, in core markets in Europe where there's a clear shortage. Vianode is currently building its first commercial anode material production line. Hydrovolt is working on recycling of batteries at end of life. The third leg will be battery materials that we will selectively explore going forward. Our strategy and its investments respond to an acute need for near shoring of the battery value chain in Europe. It is required both from a security supply point of view, but also to ensure sustainable production practices for this very important value chain in Europe. We maintain in our portfolio also the ownership in Corvus and Northvolt.
In Northvolt is a small share, but it's been a very important part of the dialogue with the management in Northvolt has been very important for us in the Hydrovolt development. To share with you some more facts on Vianode. It is extremely encouraging to see that with the technology that we have now in the Vianode and the green power into this production, we will take down a CO2 footprint with 90% compared to the emissions if this is produced in China. This is absolutely critical for cell manufacturers in Europe to be able to deliver sustainable cells. We feel that we are very well positioned on this. You see here that we have now ticked off the three first steps here. Vianode is really a result of 15-year work in Elkem.
It has been accelerated the last years, and we now have both an operational laboratory and innovation center and an industrial pilot running in Kristiansand, producing customer samples. We have signed up two MOUs with large cell manufacturers, and more are very interested to work with us. This I really believe will be an exciting journey for us going forward. I will also just on the battery, just summarize where we are at. I think the most of it is mentioned by Hilde and myself up to now, but we are focused on the deliveries up to 2027 to deliver three times the capital that we invest in this business. Let me then finish it off with Hydro Havrand, our green hydrogen leg. It is vital to decarbonize Hydro's industrial activities as well as other industries that are in the same situation, the hard to abate processes.
The Havrand model can be scaled to offer decarbonization routes to industrials as well as other hydrogen users like maritime sector. We are in an early development phase. We are now maturing very interesting projects across our value chain, and we also work with external partners to look at larger scale steps as the next. This is a capital intensive process, and we see that large, other large industrials also need to take this step, and we need to do this together. There is also one other important aspect is, green hydrogen is very energy intensive, so it's important that it's used for the right purposes and at the right places. Again, the Nordics and Brazil are good places to start.
We need to find places where there is a low-cost power that can be used for this and where there is a really also customers close to. What needs to take place to make this profitable over time? First of all, we need scale. Technology development needs to go faster. It's also clear that now in the first phase it is important with, also support from governments around. Here we see that both REPowerEU is now very strong on this and on hydrogen, very clearly coming with incentives, not in detail yet, but that will come. The investment, the Inflation Reduction Act in U.S. was very, very encouraging, and we see there that we can really get benefit from that also for green hydrogen.
In Norway, the recent agreement on the national budget includes the requirement for the government to put forward a plan for contract for difference for hydrogen in 2023, also very important. There are many things that will happen in this area, both scaling and soft funding and industrial consumer development will have to go in parallel, and we take this step by step. We will contribute to the reduction of 30% in Hydro internally, and we have a large, let's say, volume to work on. At the bottom also, it's very important to say that when we come towards 2027, we will work this out together with partners, both industrially and financially. We will seek capital, external capital, both into the projects, large scale projects, but also at Havrand Topco level, where we will grow together with external capital.
Let me just have one last. There it is. For me, the role that energy as a competence center, the role that we have in Hydro is really, it's really so interesting to work with because it's so important for the total development of the company. When we come to 2027, we really see how this business area and all the competence we contribute with for the rest of Hydro is really going to deliver on Hydro as a both profitable company and a more sustainable company on the way to net zero. I invite Hilde up for the Q&A.
Great. Thank you, Arvid. We will start the Q&A with Hilde and Arvid. Should we start?
Good morning. It's Liam Fitzpatrick from Deutsche Bank. I'll just start with one on Hydro Rein. You mentioned the plan is still to take a capital light approach and you're in talks. What is the confidence level that you'll get a deal done in the relative near term? The previous target was Q4, which has been missed. Should we expect something in Q1? Then can you comment on if that doesn't happen, you know, what's the plan post that? Thank you.
Shall I start? Yeah. We are working, as I said, we are in an active process, and I do not want to give a timeline for, let's say, exactly when these processes will end. You know very well that these processes from time to time will have to mature, in parallel with other processes, but we are confident that we will reach a conclusion, and I do not want to speculate beyond that.
Could I ask one quick follow-up? Can you elaborate on what sort of share you're aiming to?
No, we have said that we are our, let's say strategy is to have a majority in Hydro Rein going forward.
Hi, Dan Major from UBS. Just another question on Rein. You've indicated the CapEx spend that you would look to carry this year at $2.1 billion excluding based on current projects. Can you give us a status on the timeline for, and excuse my pronunciation, Feijão , I think it is? When do you expect to approve this project? If you did, what would the uplift in the rate of cash burn be for Rein?
Well, I'm not sure if I understand 100% what the question. What we say now is that to finish the projects that we have secured, that's the one in Sweden and the three in Brazil, will take in total NOK 2.5 billion for... That is really what it takes. That is the secure projects. They are in the construction. The first one, Stor-Skälsjön , will come in production fourth quarter next year, and the rest will come in production in 2024.
Okay, just to be clear, that includes the wind project that you recently secured in Brazil?
That includes.
The 2.1 includes.
The w-
wind project?
Yeah. Yeah.
Yeah.
Yeah.
Okay.
Yeah.
Okay. Thanks. That's very clear. Okay, I'll ask some more later. Thanks.
Yeah.
Thanks very much. Danielle Chigumira from Credit Suisse. On recycling, you mentioned the strong returns you're currently generating there. How long do you think those can be maintained given you also mentioned the significant increases in capacity you expect to see in China and elsewhere?
I think it's very much about what kind of scrap you're looking for. I mean, there Recycling can be done based on clean scrap, on process scrap. What we are really looking for is to go deeper into the scrap pile. The more difficult scrap it is, the better or the lower cost compared to a standard ingot.
To handle that more difficult scrap is the capability that we are developing in terms of sorting and shredding so that we can get the metal on the furnace and be able to transform that into a good billet. That capability that we have developed over the years is really what creates that margin because the plant itself, it's a cast house. So that is where. That is why I think that we will be able to sustain that margin, given that we are also able to, which we have to work on to be out in the market to source this difficult scrap.
Thank you. One follow-up on energy. You mentioned a kind of a base level of EBITDA generation of NOK 3.5 billion. Does that include the normalization to the EUR 20-EUR 30 per megawatt hour you expect to see in long term for energy prices?
No. This is, we have taken the last 12 months, we have taken out all the price area gains that we have had, we normalized production up from, as probably around 7.5, that up to the 9.4 level. That's the two adjustments we've made. For reference, the average price in NO2 for the last 12 months has been NOK 2 per kilowatt hour. That is just utilizing or using the last 12 months, normalizing for no price area gain and production up to normal level. It's not a speculation about the future. Paul will show some sensitivities later today.
Understood. Thank you.
Thank you. Good morning. Ioannis Masvoulas from Morgan Stanley. Two questions from my side. The first on Rein again. Given the challenging market in raising capital, are you reconsidering whether part of the existing hydropower footprint could be included into this vehicle? If you do have revenue-generating assets today, it completely changes the capital raising story.
Mm-hmm.
What's your view on that? Are there any restrictions around your contracts that don't allow you to do so?
I can start on that one. Hydropower in Norway is quite regulated from the government and let's say the laws around that. There is limited flexibility on that note. It's a very different business. We really want to have Rein as the development vehicle. It's a separate entity where we really want to utilize this as a growth vehicle in a capital-light manner. That's why we go in the early development projects with a higher ownership share and then go down to minority once we are ready to go into operation to really maximize the equity return for Hydro shareholders. To combine this with, let's say, the classic large scale hydropower units in Norway is really. Then you're creating something completely different.
It's really to have the focus on what Hydro Rein should be, the business model of Hydro Rein. I think we just have to ensure that that is robust enough on its own merits.
Understood. Thank you. Just another question on the cost curve you showed on bauxite and alumina. There is a fuel switch project which could make a big difference in the economics, right? At the Q3 results, you talked about $80 million per quarter uplift.
Mm-hmm.
Can you talk about this LNG contract that you have in place? Is it fixed price? Are there any indexations? How did you come up with such a big number, and how should we think about the contribution from that switch based on either spot or give us some sensitivities around it, I guess. Thank you.
Well, the calculation is based on the contracts that we have made in terms of fueling to do the change from heavy oil to gas. So there is a fixed contract, which is, how long is it? 15 years for the switch in Alunorte, which is the $80 million that comes in at the end of second quarter.
The power contracts are 20-year contracts at a U.S. dollar currency with an agreed indexation.
Yeah.
Any other question? I think we have room for one more and then...
Kenneth Sivertsen from Pareto. Just a quick one on Havrand. It seems like the scope has been lifted a bit. You mentioned now also hydrogen for the maritime sector. What should we read into that one?
I think you should read into that, Norway is a maritime nation. We know that, when the government in Norway is looking for a further incentives to decarbonize the Norwegian industry and society and transport sector, maritime sector is one of those that they will target. You know, with our smelters, being very close to the coast, you can imagine that there are combination opportunities where you create hubs that both can, let's say, serve the overall operations as well as serve the maritime sector. So this is not completely new. We have transport as part of, let's say, the scope earlier also. We see that what's now coming in the Nordics or in Norway especially, can really be then an further trigger for the how fast this can come.
Great. Thank you very much. We have a break and we'll meet back here again.
When do we meet back?
In 20 minutes.
Aluminum is a fantastic material. It's lightweight, yet durable, it's strong, yet formable, and with a wide range of applications and properties, making it perfect fit for the green transition. Increasingly important, it is infinitely recyclable without losing its properties, and you only need 5% to recycle it, 5% energy to recycle it. Several of these characteristics are not shared by materials that have historically competed with aluminum for market share. Steel is heavier and more corrosive. Copper is more expensive and also heavier. Whereas composites and PVC are less recyclable and have a worse climate footprint, as they do not have a clear roadmap to zero emissions. In its own right, aluminum is an important driver for a successful green transition where it is put into use. Lightweighting cars, extending the range of battery electrical vehicles, as an example.
Its conductivity makes it well suited in electrical infrastructure, such as power lines and components for both solar and wind power generation. In the green transition, it is as important that the aluminum used is produced with as low carbon footprint as possible. Here, aluminum based on renewables have a clear advantage compared to the global average. Driving down the emissions throughout our value chains is not only a moral obligation, it's also a business opportunity. Looking towards 2030, we see the demand for aluminum in our main markets is set to grow at around 3% per year. Remaining strong even in the challenging market conditions we see in the short term.
What is striking is that when we look at the low carbon aluminum, demand is accelerating and set to outpace the rest of the market with a current conservative estimate of 20% growth for low carbon primary aluminum from 2022 - 2030. In fact, by 2030, we expect low carbon and recycled aluminum to make up a majority of the EU and North American market. This is based on three main drivers for low carbon aluminum demand. First, stricter regulations on emissions intensity supported by increasing carbon costs, and external pressure to reduce Scope three emissions. Secondly, business and industry are increasingly committing to ambitious emission reduction targets to capture the third driver, capturing value from a shift towards greener demand from end consumers, who are motivated by reducing their own carbon footprint and driving demand for greener products.
Hydro has a strong position today with our greener brands, Hydro REDUXA and Hydro CIRCAL. We are experiencing strong traction for these products in the market as we speak. We have become more confident year by year that the low carbon aluminum market will outpace the growth of the total aluminum market, supported by an increasing trend of customer commitments. When looking into the specific market segments demanding low carbon aluminum, transportation will be the major driver of demand, as many OEMs have set ambitious decarbonization targets, their scope 3. We see a similar development in building and construction, where an increased share of low carbon aluminum will be needed to meet ambitious decarbonization targets also here.
For many of these, their Scope three emissions represent the majority of their footprint. They challenge their material suppliers, such as ourselves, asking how low can you go in the future? We are in close dialogue with several of larger OEMs and other ambitious customers on how we can collaborate to develop and deliver materials and products they need to reduce their emissions. One example is VELUX, which you will hear from now, as they explain the impact of Hydro aluminum on their ability to execute on their climate targets. Let's have a look.
For more than 80 years, the VELUX Group has been improving people's living environments by introducing daylight and fresh air through the roof. The company manufactures roof windows, modular skylights, decorative blinds, sun screening products, and roller shutters, plus smart home solutions to operate them all with the aim to ensure people's health and well-being when inside buildings.
What is your strategy when it comes to sustainability?
Our strategy when it comes to sustainability was launched two years ago. Two years ago, we committed ourselves to a sustainability strategy where we signed up to targets both within Scope one, two, and three, and it's all about the company driving a transformational change in order to become more sustainable. The second one is we want to create and develop innovative, sustainable products. Thirdly, we want to drive a responsible business. Our targets on Scope one and two is that we want to become carbon neutral in 2030. On Scope three, where we have a target that is tying up to the science-based targeting of 1.5 degrees, which has been approved, is that we want to take 50% out of our current carbon emissions.
Very ambitious targets, and that's our target towards, 2030.
With manufacturing operations in over 36 countries and approximately 12,500 employees, VELUX Group has a large influence on the industry and its trends, which is why the company strongly advocates for reducing carbon emissions in both building materials and from buildings. A few months ago, Hydro entered a partnership agreement with VELUX concerning the supply of low carbon products, Hydro REDUXA and Hydro CIRCAL, for use in the manufacturing of VELUX roof windows, flat roof windows and accessories, shutters, and blinds. This will help reduce the carbon emissions emitted per kilo of aluminum used in VELUX products and thereby contribute to its sustainability targets.
If we look at the window, for example.
Yeah
... like we have here.
Yeah.
How much of the window carbon footprint is actually linked to materials? From that, again, how much is linked to aluminum?
Yeah. In a window, if we look at our products in our scope three, 85% of that is linked to materials.
85
85, that's a large amount of our product. Of course, the material is essential for us to address in order to achieve our overall target. When we look at the window, we have glass, we have wood, we have metals, and we have aluminum. Aluminum is around 22% of our total product materials. Aluminum represents 22% of our products.
A lot of CO2 footprint of the materials and the aluminum will have a really great impact.
That's correct.
Yeah.
That's correct.
A final question from my side, and that is on your journey.
Mm-hmm
... on your sustainability roadmap, how important is the strategic partnerships, like we have together?
Yeah
... Hydro and VELUX?
Think back to the facts. Since 85% of our product is and our CO2 impact is related to materials, we can't then make the CO2 reductions in absolute figures that we have to do if we don't work together with our partners like Hydro or our suppliers. We need to work upstream so that we can make the CO2 savings that we need to do. We need to make the right choices of suppliers and partners in order to bring down our CO2. We can't do it on ourselves. I think there will be a battle over the next few years on who are able to support the manufacturers of products to deliver CO2 improved materials.
Definitely. Thank you so much.
Looking at our position today, we are already a leading players in terms of embedded emissions in our primary and recycled products. Our primary aluminum produced on renewable energy has 4.5 times lower emissions than the world global primary average, placing it among the most carbon efficient aluminum in the world. Looking at our Hydro CIRCAL 75R, the footprint is almost eight times lower than the global primary average. Looking forward, our customers expect us to do even better, and we want to do better, and we can do better because we as Hydro, we can impact every step in the aluminum value chain, from mining to extrusion, including energy. Last year, we presented our updated climate targets and a concrete roadmap to zero towards 2050.
If you look at the composition of Hydro's sources of greenhouse gases, to the left of this slide you see they can be divided into four main categories. The first, around 30%, are the process emissions from the electrolysis process. The second is the natural gas we use in the cast houses for recycling and remelting aluminum, extrusion processes, and anode production. This is around 10%. The third is the CO2 footprint from the electricity we purchase, so-called scope two, also around 30%. The last 30% is related to fossil fuel consumption at Alunorte. Our roadmap and the initiatives we have in place until 2030 are primarily related to the fuel switch in Alunorte. In 2030, we are left with the hardest to abate emissions.
Already now, we are working on new technologies, such as our HalZero technology and carbon capture and storage, both to address the electrolysis process emissions, and Eivind will talk more about that later today. For the gas we use in the cast houses, we are looking into alternative fuels, such as green hydrogen. Addressing emissions from the purchased electricity is mainly outside of our control. However, we are also looking at alternatives at these locations. Hydro Rein and Hydro Havrand are working together with the business areas to contribute to strengthen their position in low carbon aluminum through renewable sourcing and decarbonization. To sum up, there are three factors in particular which we believe support our ambitions and our positioning towards low carbon aluminum. The first one is traction in the market.
We see it for our low carbon products today, and looking at the ambitions throughout market segments, we are convinced that there will be a substantial market for even lower aluminum going forward. Secondly, we are able to capitalize on our existing position by capturing a green premium for our greener brands. We do not sell a ton of REDUXA or CIRCAL from aluminum metal if we do not get to receive a premium on the top of the value-added premium. The competition for greener and pull from end consumers we see in the market shows that there is an increased willingness to pay for best-in-class materials. Thirdly, and finally, we have the capabilities to take a leading position as a supplier of materials and solution in the market. Therefore, we are raising the bar and aim to double our sale of greener products towards 2030.
How are we going to do that? Well, as I started out, every step on the path to zero counts. In Hydro, we are in a unique position where most of the steps in the aluminum value chain are under one roof. The first steps we are taking is in Brazil by Hydro Bauxite & Alumina and Jon's fantastic organization in Brazil. With that said, I give the floor to you, John Thuestad , the Head of Bauxite & Alumina .
Thank you, Hilde. You're absolutely right. I have a fantastic organization in Brazil. As you can see, we are working very hard, and I guess you guessed I'm working with alumina. Look at my color of the hair, huh? It's so... We are so engaged in this. Remembering back when I was here three, four years ago, we came from a very different starting point. We had just, you know, gotten out of the embargo, and what I would like to talk about today is, you know, our priorities in the Bauxite & Alumina family would be to be a robust, stable supplier, you know, to both our favorite customers in-house, but also of course external customers with the right products for the right price. We have created a more robust operational platform.
We have increased our social reach, we are reducing our environmental and climate footprint to make sure we are taking a lead in the Bauxite & Alumina industry. If we look at the abatement curve or the carbon emissions, we already in the industry have an average of 1.25 tons of carbon per ton of alumina. Hydro and Bauxite & Alumina is at 0.65 tons of carbon per ton of alumina. With our recent actions, we will drive this down to 0.45 tons of carbon per ton of alumina. Just remind ourselves that there's four units of bauxite becoming one unit of alumina. Two units of alumina becoming one unit of aluminum.
If we think about that, we will then attack the overall carbon challenge for liquid aluminum metal with a starting point of 1.4 tons of carbon per ton of liquid metal. We'll cut 25% of this by 2025 with the so-called fuel switch project, which is replacing, you know, oil and some coal with gas for steam production and calcination. By 2030, we'll do additional electrification, and then we'll cut another 25%. In parallel, we are working to develop then our hydrogen/further electrification solutions. We see a path to zero by 2040. Finally, we'll also reduce the bauxite mining part by electrifying the transportation element. All in all, to me, we already have a proven solution for the first 25 and the second 25% reductions.
We have a pilot already with an electric boiler that we put in, which will electrify steam production. We have signed off with Rein, renewable energy contracts for the next 20 years. We are putting in another two electric boilers within next two years. The fuel switch, which we talked about earlier and Hilde mentioned, going from oil to gas. We already have the gas terminal ready in Barcarena. We will start transitioning our operations this year, and then be ready by 2024. All in all, it's a good story, and the reason it's a robust gas situation is that we are the first customer, but there also will be a combined cycle power plant in Barcarena, so it will be a very robust LNG position.
We also had a question of why do we see this improved cost position. It's because we have a fixed transformation cost, and we have a 15-year Henry Hub link. Just for reference, today, I think it's $5.5 per million BTU for gas in Henry Hub, and in Europe it's $40. If you link the Brent to oil, then you have that arbitrage, which is giving us this movement on the cost curve. I started out with it's more for me, you know, than only the carbon. It's social reach. It is, you know, environmental footprint. We need to look holistically on the business. What we have done is to remove the need for tailing dams.
We are looking at circular economy for the bauxite residue. We have a very active social program. I'll now show you a video summarizing what we have done over the last few years and what we are doing going forward to secure both the operational license, the cost position, but also the social license to operate. After the video, my favorite customer, Eivind Kallevik, will come up and take over the journey.
Our most significant impact on biodiversity is at our bauxite mine, Paragominas, where the land has to be cleared prior to mining. In order to minimize our long-term impact, we ensure that all mined areas not dedicated to long-term infrastructure are then rehabilitated within two years. Our Paragominas Bauxite Mine has revolutionized bauxite tailings management by designing and implementing a methodology known as Tailings Dry Backfill. This methodology eliminates the need for new permanent tailings storage facilities. This means that Tailings Dry Backfill effectively eliminates both the significant CapEx and the HSC risks linked to conventional tailings management, changing the bauxite mining industry. At our alumina refinery, Alunorte, our main waste stream is known as bauxite residue. Alunorte has just implemented state-of-the-art technology in building its new bauxite residue storage area. DRS2 will occupy a quarter of the footprint of DRS1 for the same alumina production.
Alunorte is also partnering to develop technologies to utilize bauxite residue in other industries, such as cement production and iron ore, contributing to the circular economy. Our rehabilitation efforts are also supported by something known as the Biodiversity Research Consortium, which spans four universities and which performs local research into biodiversity and rehabilitation at Paragominas. Our Paragominas mine is also completing a feasibility study to determine how to deliver a no net loss ambition through an integrated landscape management approach. Hydro is also working to continuously improve our social impact in the communities where we operate. In order to foster sustainable development in the region, we have also created the Hydro Sustainability Fund, whose objective is to support sustainable social projects within Barcarena as chosen by local representatives. One example is something called Tipitix. This is a project which looks to launch and support the agri-food business in Barcarena.
Hydro is also partnering with the local authorities to deliver on one-off infrastructure projects to build critical social infrastructure for the local communities. A good example of this is the technical school that we just finished building in Barcarena. The technical school in Barcarena will educate 1,500 local students each year and serve as a pipeline of local talent for both of our Barcarena assets. Another good example are the three community centers that we're currently building in Belém. These will serve as a community space in some of the poorest neighborhoods in Belém, offering family-related services, basic medical services, documentation services, sport and cultural activities, and educational support. Hydro's ambition is to improve the lives and livelihoods in societies where we operate. This is what it means to be a good neighbor, because ultimately, it will dictate our social license to operate.
Thank you, John. You are also my favorite supplier of alumina, clearly. Welcome to all of you. It's nice to be back also in person, I think, out of the 2D and back into 3D, which is good. I think as Hilde said, we have already reduced our CO2 emissions from the aluminum smelters by more than 70% since 1990. Still, even after that fact, aluminum metal is still responsible for roughly half of Hydro's direct emissions. I think it's also important to realize that these are really what we call hard-to-abate emissions, as mentioned by Hilde before. Now, reducing these emissions will require a lot of ingenuity, innovation, and dedicated efforts to succeed with.
To do this, we have, as talked about before and earlier today, made a comprehensive roadmap consisting of three parallel paths to develop a zero aluminum technology, zero carbon aluminum technology. First of all, we are developing an entirely new aluminum process that we've called HalZero. The HalZero will remove the use of anodes altogether and will emit only oxygen instead of CO2. I will get back to this in a second or two. Secondly, we are also working to develop a carbon capture and storage solution for the existing smelters we have to make them ready for a net zero future. Finally, the fastest way to decarbonize production is really to grow in recycling of post-consumer scrap while decarbonizing the remelting process. First of all, let's have a look at the HalZero process. In a second or two. Yes. Thank you.
The need for aluminum is growing fast. The need for carbon neutral solutions is growing even faster. Aluminum enables high tech, fast tech, and the green transition. To achieve carbon zero emissions, we rethink, recycle, and realize new technologies. This is HalZero, a step change aluminum smelting technology. First, alumina and carbon monoxide are chlorinated. This forms aluminum chloride and CO2. These products are separated. CO2 is converted into carbon monoxide and oxygen. Only the oxygen is emitted. Aluminum chloride goes into electrolysis, resulting in aluminum and chlorine. The carbon monoxide and chlorine are recycled in the process in a continuous closed loop. HalZero, the greatest step ever on our path to zero.
It looks good, huh? We'll see it in reality soon. To sum up, the HalZero process is really a breakthrough closed loop aluminum technology, all brought together in a closed loop that eliminates the emissions of CO2 and emits only hot oxygen. Over the last years, we have had dedicated teams of scientists who have made now significant steps on the way and the path forward. We received also funding from several funding bodies to further mature this technology. Through experiments and modeling, combined with the industrial experience we have in the company, we have now confirmed this promising technology basis. The team is now preparing to build the HalZero test facility. We have done it in lab scale, so it's now the next step to be built at the technology center we have at Porsgrunn in Norway.
The final engineering of the test facility is very close to completion, pending the award of some further government funding, we can start construction already in 2023 to further take steps on maturing the technology. If the ambitious timeframe we have holds, we will see first metal coming out of this by 2026. The second path to zero emission aluminum goes through carbon capture and storage. This is really to protect all the great assets we have today already producing aluminum. Here, the collaboration we have with Verdox is already start to bear fruit. We have successfully completed the first stage of the Sunndal smelter in 2022, yielding good and important knowledge about the compatibility of the off-gas and infrastructure we have together with the Verdox capture technology.
Based on this test, construction of the second test phase is now, installation of that is now started, and the test will again start in the beginning of 2023 at one of the Norwegian smelters. Again, we receive support for this technology roadmap, this time through Gassnova in Norway. We're still to decide where we will put the final industrial test phase in Norway. Several factors to be evaluated before we make that decision. Where is a good power source? How does the grid look like? And so on and so forth. We'll come back to that towards the end of next year. At the same time as we work on carbon capture, directly from the off-gas, we're also working with Verdox on direct air capture towards industrialization.
We do believe that direct air capture is going to play a major role in reaching global climate targets, not at least by tackling the residual emissions from hard-to-abate sectors and industries around. While we still have some way to go in terms of proving up the technology to 100%, we are already now entering into dialogue with suppliers where we can both not of capture, but transport and store the captured CO2, as this will be important both for the direct capture as well as from air as well as from off-gases. The third path to zero emission aluminum goes through the use of post-consumer scrap. As you know, we have delivered the premium recycled product called Hydro CIRCAL for about five years now.
We see the demand for this continue to grow. Important to say that the increased use of post-consumer scrap requires significant knowledge around sorting capabilities, which we're also spending development or technologies on. This year, we have further developed our HySort technology. This is based on laser-induced breakdown spectrosc, lidars, let's call it that. I thought I had that word yesterday. The second pilot installation is now in operation at our St. Peter plant in Germany. HySort will enable us to further expand the Hydro CIRCAL production across more plants than what we do today. This year, we reached another important milestone. We produced what we call CIRCAL 100R, which is based on 100% post-consumer scrap. Sits right over there at the end of the stage.
For those of you who haven't taken a selfie with a unique product before, this is the time to do it. This year, we have delivered more than 300 tons of Hydro CIRCAL 100R to my good friends in Hydro Extrusions, and I'm sure Paul Warton will come back and comment on this also later on in his presentation. While recycling, as Hilde said, only requires 5% of the initial energy it takes to produce primary aluminum, we still want to decarbonize all the CO2. We need to develop technologies on how to decarbonize our cast houses and recycling furnaces. As announced previously, we are building a recycling plant also close to our Høyanger primary plant in Norway.
I have to say that I will join Hilde when she says she's really excited that we are now collaborating good with Hydro Havrand, where we will build a green hydrogen plant at this site. We are together with Havrand currently maturing this project, which is still pending some governmental support in terms of developing the project from Enova. This hydrogen plant is then built to produce some 5 MW of hydrogen. This we will use to power one of the recycling furnaces on site. This pilot will be key for the continued decarbonization of the cast house operations that we have, and this is one of the very promising technologies we have to do exactly that. That means, when successful, the recycled products that we will produce at Høyanger will be 100% decarbonized.
The recycler will remelt 100% post-consumer scrap, and we will use this as a cold metal feedstock into the other primary plants in Norway, again, lowering the footprint of what we today know as Hydro REDUXA of 4.0 down to 3.0 or even below. The recycle plant will use hydrogen instead of LNG, 5 MW. We have a plan also to do a step two, which will then increase the hydrogen production up to 13 MW. Step one alone will save some 4,000 tons of CO2, and step two will double that amount. This is really the first pilot to show that our operational capabilities to do a full switch in this large industrial scale plant is possible, and the project will then start executing already in 2024.
In order for us to successfully deliver on the decarbonization strategies, we need to team up with frontrunners along the entire value chain. John is going to do his part on the alumina side, but we also need to find customers who has ambitious plans. So working in strategic partnerships with customers and other players in the value chain is critical for us to achieve our ambitions for shaping the market for low and near zero carbon aluminum. Today, I have to say that we are truly excited to announce a new strategic partnership with Mercedes-Benz. Mercedes-Benz and Hydro really share a very ambitious CO2 reduction roadmap both towards 2030 and beyond. It's good to find demanding customers who we can cooperate with and find good roadmaps on, together with.
The objective for the collaboration is really to contribute to reducing the climate impact of the automotive industry by utilizing the full potential of aluminum as a low-carbon solution, not only to replace conventional aluminum, but also to replace other materials in the cars. Our two companies will collaborate from 2023 until 2030 and beyond to develop a common roadmap to find alloys and materials that we can use. The target is now to spearhead aluminum alloys for automotive applications with very low-CO2 footprints and with the ambition towards 2030 to get close to zero. I think also importantly, it's not only a roadmap, we also start delivering lower-carbon products already in 2023. Mercedes-Benz will be the first company to utilize our REDUXA 3.0, so less than 3 kilos of CO2 per kilo of aluminum.
It's a 25% reduction compared to REDUXA 4.0 that is currently the benchmark in the industry. As Hilde's already said, we are delivering on our recycling strategy at high speed, and we will even increase our ambition when we go forward. As communicated at the last Capital Markets Day, we have made several investment decisions during the last couple of years, and we are well on the way with execution. Only this year, we've broken ground both at the Cassopolis recycling plant in the U.S., as well as a new recycling plant in Hungary. In the second quarter of this year, we announced a tender offer for 100% shares of the Polish recycler, Alumetal.
Alumetal is the second largest producer of aluminum secondary foundry alloys in Europe, with a production capacity of some 275,000 tons per year, three plants in Poland, one plant in Hungary. The original tender offer expired on October 12th this year, as one of the conditions on the tender offer, was the European or the clearance by the Commission was not obtained within the tender offer deadline. We, together with Alumetal, is currently going through what is known as phase II, and we aim to launch a new tender offer as soon as we reach the clearance from the Commission. In Norway, we are progressing well on the ambition to increase the use of post-consumer scrap in the primary smelters.
In addition to the Herøya recycling plant or investment decision, which I just mentioned, we also made a decision to invest at the Årdal smelter in Norway. Other important achievements this year have been, as I mentioned, 300 tons of CIRCAL 100R out of Global, certification of U.S. operations in Henderson, Commerce for CIRCAL production, and delivering the first volumes of Hydro CIRCAL to the U.S. market. We also decided to expand the Cressona recycler in the U.S. Now, while Hydro's strategy historically consisted of developing its own recycling portfolio, we are not yet active in the scrap-based PFA market today. The ongoing M&A process of Alumetal offers an opportunity to diversify our scrap-based portfolio to the new area of secondary foundry alloys and to scrap-based PFAs as well.
During the year, we have identified further potentials for growth within our recycling business, and we are increasing our target. By 2027, we are now targeting an additional NOK 1 billion in EBITDA uplift, and we are increasing our PCS ambition by 100,000 tons over the same period. This will result in an EBITDA uplift versus 2021 of between NOK 1.4 billion-NOK 1.8 billion, and roughly 2.5 x the use of PCS. Recycling will also play a vital role towards the low carbon economy. We see that more and more scrap is coming back from end-of-life resources, and recycling of post-consumer scrap is becoming increasingly important source of metal to the market.
Roughly 35%-40% of the expected growth towards 2030 of metal is forecasted to come from post-consumer scrap coming back. This development we see further acceleration on, driven by customer demand, driven by regulatory push, and driven by support schemes, which includes, as Hilde said, European Green Deal. The spread between LME and scrap prices has increased over the past couple of years, as the demand side for PCS has really not met the increased supply of scrap coming back. This has largely been caused by lower demand for secondary founder alloys, which has been the traditional outlet for post-consumer scrap, and by China limiting scrap imports. Larger volumes of scraps are, on the other hand, still exported out of Europe, mainly to other Asian countries, representing a lost opportunity for value creation in Europe.
We do expect scrap prices to stay relatively low in relation to LME in the coming years, to your question, Daniella. This goes in particular for the lower quality and complex scrap types. Reduced exports would again underpin the price spread relative to LME. In aluminum metal, we have been able to steadily increase our EBITDA margin over the last couple of years by focusing on optimizing the raw material input mix, increased use of post-consumer scrap, and at the same time, achieving additional premium for the Hydro CIRCAL brand. Relative to the five-year period running up to 2013, which is when we started to focus on recycling of post-consumer scrap, we have increased EBITDA margin over the last five years by a factor of two and a half.
Despite attractive prices and sustainability profile, the use of post-consumer scrap and products other than SFA is limited due to its complexity. In order to expand the post-consumer scrap to more products and more segments, efforts through the recycling value chain is required. If we start with scrap sorting, Hydro's main strategic objective is to source more post-consumer scrap, lower quality, and maintaining a high value-added product portfolio. This we will achieve through further strengthening of the scrap sourcing organization. Closer engagement with scrap suppliers and development and rollout of common IT systems to support the scrap procurement across Hydro. If we look at scrap sorting, developing a strong position, particularly in advanced sensor technologies, it's strategically important to secure the required quantities and qualities of PCS.
Upgrading low quality, low price scrap for use in extrusion ingots, sheet ingots, and recycled scrap ingots will be an important contribution to bringing more used aluminum back into the loop as value-added products. Thirdly, allocation of capital to recycling growth, developing a strong asset base with capability to use even lower quality PCS is also a key component to develop our products for more end-use applications. We are, as I've already highlighted, well on the way in executing the already decided investments, and we are developing a good and strong pipeline of further opportunities. Finally, as we've seen with Mercedes as well, and the 100R, we need to develop the market for products with higher post-consumer scrap content. We will continue to market the Hydro CIRCAL to a wider customer base and with more advanced alloys.
In addition, we are working with partnership with our customers and their customers to ensure that we meet the current and future requirements, hereby under exploring new closed loop concepts and new alloys and service solutions to meet their needs. To sum it up, we are well-positioned for further profitable growth in recycling, strong capabilities along the full value chain. We have unique flexibility when it comes to scrap sourcing, with multiple options for scrap consumption through the diverse product portfolio we have. We have in-house sorting capacity in St. Peter, Germany, and we also have developed new advanced sorting technology called HySort. As an integrated aluminum company, we are in a unique position to lead adaptation of innovative green aluminum products with recycling, for instance, through downstream integration in Hydro Extrusions or Extruded Solutions.
We have a large and growing asset base, more than 25 recyclers in Europe and North America. In addition, we will utilize the primary capacity we have to blend in different scrap types. Strong metallurgical and technical and commercial competence to lead adaptation of innovative greener products. Last but not least, we have to work closely with our customers to ensure that we meet their current and future requirements, and as well as exploring how we can meet these in new and innovative ways with even more sustainable products. On that note, I will do as John said, calling me his favorite customers. I will introduce one of my favorite customers, which is Paul Warton from Extruded Solutions. Thank you.
Thank you, Eivind. Much appreciated. First Brit on stage, non-Norwegian. This is fun for me. It was even more fun this morning to listen to my Norwegian colleagues complaining about how cold it is in London today, and it was very, very cold, of course. This is gonna be a good presentation. I can tell you that now. There's no excuse for a bad presentation, because I had 90 minutes of additional time last night that was in my diary for something else. Unfortunately, we lost against France on Saturday, and I was not gonna spend 90 minutes watching Morocco versus France. Good luck to France for the final on Sunday. What I will be talking to you about is Hydro Extrusions further downstream in the value chain, and I'll talk a lot about our growth prospects and profitability.
Tell you a little bit orientation about, you know, who we are, a bit about how we got to where we are now with the results you see. Of course, how we're gonna get to this NOK 8 billion commitment we made one year ago for 2025. Towards the end, I'll talk more about sustainability, low carbon, high recycled content products in our portfolio, and how this is contributing to this valuable journey for us. Hand over to Trond Olaf. Extrusions, growth, and profitability. Orientation. We have four business units, very different business units within Hydro Extrusions. Ones you probably know about are the Extrusions in Europe and North America. These are the bigger ones. These are the engines of growth in Extrusions.
When I say Extrusions, this is casting, recycling, this is extrusion presses, and this is components, often sophisticated value added components with our customers. That's the business model in both Extrusions Europe and Extrusions North America. These are sizable, scalable businesses with a strong lead-in market position. What we don't talk about so much in these environments is my other two business units. I wanna mention those today because these are really into innovative solutions, high growth markets with a range of customers, global customers. My expectation of these two business units, they will grow much faster than the market. They should grow faster than Extrusions North America and Europe. They are highly value accretive in our story because their EBITDA per ton is substantially higher than traditional Extrusions business.
We'll talk a bit about these two business units during this presentation. Extrusions Europe, of course, you know, we're a strong player. We're into these secular markets where there are substantial growth opportunities. Of course, automotive, light weighting, and more recently, the electrification of the fleets. This is a really high growth area for us. We're lucky with our infrastructure. We have high recycle capabilities in both Europe and North America, 1.2 million tons per year of recycled product that we produce. This is, of course, satisfying our customer demands on recycled content. Also it's a low carbon solution for our customers as well, because we are their challenge on Scope three reductions that they all target. TV is about to turn off.
Okay, moving on to how did we get to where we are today in terms of our performance? We've really lifted our profitability that you would have noticed, and it's really coming from these key drivers here. A lot of work's been done over the last few years on restructuring the portfolio and really driving our presence in right markets for us, attractive markets for us. Sorry, it's just disappeared off the screens at the front. Of course, this is contributing a lot, you'll see in a moment on the waterfall chart, to our improvement to get to where we are today on these operational portfolio restructurings. Also, Hilde mentioned it, our extrusion business system. This is our waste elimination improvement processes we run in the plants, all of our plants around the world.
This is also a big driver in our improvement numbers as we go towards where we are today. Of course, customer and commercial focus being the furthest downstream business in Hydro. This is really where we're working closely with customers, solving their problems, designing innovative, creative solutions for their market. We're here, we're talking thousands of customers and thousands of new products every year. This is really a value creator for us on our commercial ambitions. As we said earlier, in the Hydro commercial ambitions going forward, this is also an area where we will deliver many of the group opportunities on the commercial side. You've heard about our investments, the capacity growth. We have produced an awful lot of CapEx demands on my lords and masters to spend money in this business with high IRR return projects.
Growth markets, high internal return. You do have to invest. One of the reasons we've not delivered on our commercial ambitions in the last 12 months is we did not have enough installed capacity to deliver on the customer opportunities were there. We have to make sure we're not constraining our CapEx on current opportunities we see going into the future, 'cause what we spend today will deliver in two years time, the revenue stream and the value creation opportunities. Of course, sustainability, you hear a lot about that today. This really is one of our tools in the marketplace. We are uniquely positioned, being fully integrated.
We're uniquely positioned because of our high level of installed remelt capacity and this closed loop recycling with customers to really deliver on our customers' demands, which are really becoming more and more demanding to reduce their scope three numbers. You heard some examples today, VELUX being one with a very clear message. We know where we wanna grow, and we're well-positioned to grow, and this is helping our story. This is where we are today, and it gives you up to actual 2021, 5.7. A nice journey for 4.1 - 5.7. You see on the right-hand side there, the plants. This is the 100 plants we've got around the world and the EBITDA margin. You see here, clearly, all of our plants have improved. I wouldn't worry too much about the tail.
We still have some that are negative, these tend to be start-up plants, building systems in India, building systems in Singapore. These are small absolute numbers, still negative, these are investments for the future, these will deliver on our value creation ambitions. Starting from the left, the 0.3 underlying market growth, that has been extremely strong recently in Europe. That's where we've had a awful lot of our recovery. Less so in North America, constrained by capacity, we have had some following wins. You see the main delta there is the improvement, the NOK 2 billion, this is coming from restructuring, from SG&A fixed cost reductions, from procurement, from EBS. That's a significant number. You'll see going forward, we have the same ambitious improvement levers going forward.
The commercial ambitions, this is a mix of first of all, margin management. This is green margin that feeds into this number, and this is commercial excellence, normal part of our business. This is a good journey from NOK 4.1 billion-NOK 5.7 billion, and you see all the plants contributing to that. Now let's talk about 2025 and the NOK 8 billion. Give you some comfort that this is achievable. We're one year on. We are delivering on the numbers. You see year to date September, we're at NOK 6.7 billion, I think, for this year. We're well on track to achieve that number. We're confident because we look at our markets and that NOK 0.8 billion underlying market growth. This is coming North America.
This is coming on precision tubes, one of these new markets where we've got new products substituting copper in electrification, but also the HVACR market in North America, really contributing to these market underlying market growth, strong markets that we're in. Again, you see the core improvement levers. This is not NOK 2 billion, it's NOK 1.3 billion. This time it's also procurement, but much more in the future it's EBS, it's our Extrusion Business System, which is gonna deliver on these cost improvements going forward. Very confident in that. On commercial ambitions, again, that's similar to what I said before, this is mix, this is green, this is commercial excellence. Finally, the NOK 0.9 billion, Hilde mentioned it. This is the investments that we've already committed to.
This is where we're bringing on capacity on Extrusions, augmentation in the remelt system, and value-added components with our customer to deliver finished parts. This, the NOK 0.9 billion, I am extremely confident about. NOK 8 billion, it should be clear, that was ambitious when we said that one year ago. With what we delivered in the last year, with the CapEx that's been committed from our shareholders, this is absolutely achievable. These really are the announcements that we've made publicly. That's going to deliver the NOK 0.9 billion, and it's going to give our customers the opportunities for low-carbon solutions from us on their Scope three input. It's casting, it's extrusion, and it's those market trends you see that are well-documented. These really are written for us. What we're offering in these markets is really best-in-class.
Recently, we announced the 12-in automotive press in Hungary, very similar to the Tønder press in Denmark. I can tell you, keeping up with our customers' demands in this electrification and the need for components in aluminium extrusions, low carbon, high recycle content, all the numbers and directions you just see, keeping up with the market demand is extremely challenging. I am very confident the investments we've made, we will execute on the installations, we will deliver on the customers' requirements, and we have to because they are there. They need us. Plenty of commitments taking us to where we are today, and another recent one announced, this is a very nice value accretive bolt-on acquisition in our core business, in our core markets.
This came on the market, family company, looking for a new owner. Hydro is a very good owner of this business. This is classic for us. This is casting, this is extrusion. Very interesting 12-in press on extrusion as well that suits us very well. It's a building systems operation as well. This will be run as building systems, business unit, and also the Extrusions Europe business unit. This is, once it's gone through the regulatory framework, which should not be an issue, this fits very nicely with our business and our direction. Here we buy market presence, and we buy a very nice, bolt-on opportunity in casting extrusions and building systems.
This was nice, and I have to say, we're always on the lookout for these bolt-on M&A opportunities to really accelerate our growth and value creation journey. That was a nice one in Germany. I wanna spend a bit of time on this greener Sweden. You've heard a lot about HalZero, what we're doing on the primary side. What are we doing on my business? I have 100 plants around the world. Of course we have a roadmap to zero. What's nice for me, I can go to our customers and I can say, "We're doing it today." It's not just nice PowerPoint stuff. This is happening today. With my colleagues in Hydro, this is very helpful for me, they support me on either Rein or Havrand to deliver on these reductions.
You see there how our Scope two will go to zero in Sweden through two steps: solar plus battery storage, that's the best, internal energy efficiencies. Step one, we're already committed to now. Batteries are arriving on the location. Then step two, a bit more complicated. This is what you heard about from energy on the Hydro hydrogen conversion on the cast house, supported by wind power as well. This will deliver in 2025 zero Scope two. You've heard a lot about what's happening on my input materials, my Scope threes. That's the primary side. That's the scrap side. We're doing it on Scope threes, and we're doing it on Scope one and Scope two. I can demonstrate to my customers that we have a roadmap, and by the way, we're doing it.
We will be zero in Sweden by 2025. That's quite a powerful message. Finally, Eivind gave me a opportunity in the market because CIRCAL, of course, in building systems has really helped develop our market position, which is one of the reasons the Hueck bolt-on acquisition of building systems is highly complementary. Gives the Hueck systems a low carbon solution in the market. This was one we said, "Okay, let's really test it now with the 100% post-consumer scrap content." It didn't take long. In Germany, there's this innovation park going up, and this is really owners, architects, specifiers who are listening, and this is what they want. This is what they're prepared to pay for. This project will go live, I think, Q1 next year, we kick off.
You see the 95% reduction on carbon. I mean, this is impressive. This is what owners want in B and C commercial build, and this is what they're prepared to pay for. Absolutely the market is there. This is a done deal. When that's up and running, we will certainly be happy to hold events there in the innovation park in Germany to let people experience what this feels like. That's the end of my time. That's a good point to finish on and introduce Trond Olaf Christophersen , EVP, Corporate Development, to continue this message on our low carbon offering in the market.
Thank you, Paul, and good morning. I would like to present our market approach when it comes to our greener product offerings. Hydro has a unique position in the low carbon aluminum market. Our integrated control over the whole value chain gives us control and support key decarbonization capabilities along the whole value chain at every process step, from bauxite mining to the final aluminum solution. That enable us to take a holistic approach when we look at the carbon footprint of the final aluminum solution and work with the end consumer in mind. My colleagues have presented our strong starting point when it comes to our carbon footprint in the whole value chain. They also presented roadmaps to improve in the years ahead.
Just to summarize and give some more flavor on that, we have John Thuestad presenting the bauxite and alumina area currently operating in the first quartile, best quartile when it comes to CO2 footprint for the alumina, but by 2025, then operating best 10%. We have Eivind Kallevik with aluminum metal currently delivering one of the lowest carbon footprint primary aluminum in the market. With the technology roadmaps you have with HalZero and the carbon capture and storage, you will target and go towards zero also for the primary metal in the future. We have energy currently with captive renewable energy and also renewable energy-based power purchasing agreements, but also in the future with Rein and Havran as key decarbonization enablers for the whole value chain of Hydro.
We have recycling. We have around 2 million tons of recycling capacity in Hydro today. In the future, we are growing our recycling capacity, but also growing the recycling of post-consumer scrap in the whole company. Last but not least, we have extrusion business working very closely with our customers today and delivering low carbon solutions to our customers. In the future, you're also growing in closed loop recycling with the customers and also decarbonizing your operations. All in all, and based on all of these positions, we then have the leading low carbon product portfolio available in the market to our customers today. The portfolio is based on a wide product range, but it's also available in increasingly differentiated and unique segments of lower and lower carbon footprint material.
This is starting with our REDUXA low carbon certified aluminum coming from the Norwegian smelters to the truly unique near zero aluminum produced on 100% post-consumer scrap and then with a CO2 footprint below 9.5 kilo of CO2 per kilo of aluminum. With this product portfolio, we can meet our customers' ambitious plan to deliver low carbon products already today. We also have a product portfolio available today where we can work together with them on their journey to decarbonize their products also in the future towards the ultimate goal of net zero products. Our product portfolio is not static.
With the roadmaps we have presented today, we also have a product roadmap where we will develop new and lower carbon solutions also in the years to ahead to stay really in the frontier when it comes to low carbon solutions to the market. For us, this started some years back when we launched the REDUXA, the low carbon REDUXA brand, and also the CIRCAL brand based on recycling of post-consumer scrap. Last year, we announced that we will produce our first near zero metal, as I mentioned. As Paul just announced, we have now our first project where we are delivering this metal to the customers.
Today also, upgrading the REDUXA 4.0 and now delivering REDUXA 3.0 to our customers also in the future. With our technology roadmaps, our recycling growth and also our energy growth, we will be able to develop more and more unique products in the future, reducing the footprint of our metal and work closely with the customers in the years to head towards net zero. Finally, we have traction in the market with our greener product offerings. We work very closely with individual key customers that have ambitious decarbonization plans. We heard earlier today about our partnership with the Mercedes-Benz, with our partnership with VELUX, and other customers that we have close partnerships with.
How we collaborate with them to reduce their CO2 footprint in their final solutions in the market. These are really the examples and illustrate how we work in the market, especially with the ambitious customers that have the highest targets to reduce CO2 footprint. Really develop the market and bring the market forward with limited volumes, especially for those most ambitious customers. We will continue to do this with those selected partnerships delivering aluminum with even lower carbon footprint over the coming number of years. All in all, our market approach contributes to delivering on our ambition of lifting profitability, in this case, based on our unique greener product offerings, at the same time delivering on and driving sustainability.
That's basically the summary of how we work in the market to develop the market for greener products, and then, and then delivering on our overall strategy. I will end my presentation here on the market side, and then we will move over to Q&A. I will invite back on team my colleagues, Line, John, Eivind, and Paul.
Great. We will start the Q&A for this section.
Hi there. Thanks. It's Danielle Chigumira from Credit Suisse. Thinking about the decarbonization of primary aluminum, obviously you have HalZero and CCS on a similar timeline. Which one are you worried about more in terms of the timeline, in terms of maturation of the technology, et cetera? Which one are you more worried about?
No, I think I'm not I mean, it's worried in the sense that these are still early development stages. I think what makes me less worried is that the HalZero, we approved it in lab scale. We are designing, and we will build stage two of HalZero in 2023. Verdox, we have done the first test phase at Sunndal. We are building the second step of that. Of course, when you go from step one to step two, you're relatively comfortable that you have control of technology and integration towards the industrial part or industrial plants where we need to have them. So still early TRL levels, but when we pass from one step to another, we're confident that we can solve the challenges we have in such development projects.
Great. Thank you. A follow-up on recycling. In terms of the EBITDA uplift that you're talking to, what does that assume in terms of the realized premium that you're getting for CIRCAL? Is it the same as the realized additional premium that you're getting now, or are you assuming a higher premium in the future?
What we've seen, both for REDUXA and for CIRCAL over the last couple of years is that we see an increase in the premium of the existing products. Obviously, as we are reducing the CO2 footprint down to REDUXA 3.0, or we are going for 100R, we expect and we do see increased premiums above the CIRCAL 75R, and we see increased premiums for REDUXA 3.0 compared to 4.0.
Very good. Thank you.
Hi, Dan Major from UBS. Two questions. First on extruded. You know, just encouraging you, sticking with your NOK 8 billion medium-term target. Can you give us any more color on near-term trading conditions, order book for 2023? I'm not trying to front run Paul's presentation, but it says NOK 2.8 billion negative on the waterfall for extrusion EBITDA. Kind of what assumptions are baked in there? I know you usually follow CRU as a sort of lead, but can you give us some more sense on trading conditions and outlook for 2023 on EBITDA for extruded? Thanks.
Yep, sure. Very good question, because of course, it's turbulent at the moment, to say the least. I'll come back to the billion NOK number in a minute. Really since the summer, there has been an adjustment in the demand pattern, we saw such a heavy, fast recovery from the COVID days. In Europe, if you look at the CRU, the market jumped, I think, 23% in Europe. Down 9% and then up 23% in consecutive years. I can tell you that is really demanding to satisfy customers. Of course, customers want to book capacity, they place more orders, the lead time goes out. When you do get to a calming of the consumption, of course customers stop ordering because they've got inventory, things slow down. We suffer. We suffer fast.
What I can say now, we suffered, the industry suffered from really the summer onwards, and it was a steep decline, but now it's stabled out. It stabled out at a level that we should not be alarmed about, because if I look back to 2018, 2019, it's about the same level. It was an adjustment in Q4. We look at CRU forecast in Europe for Q1, Q2. I think Q1 is like - 23% year-on-year, and Q2 it improves to - 19%. These are big negative numbers, but we mustn't forget one year ago, Q1, Q2 this year was still boom times and customers placing orders to book capacity on long lead times. I don't get too stressed about these negative numbers.
It's gonna be tough in H1, but we're already adjusting in Q4 now. I look at CRU in Q3, Q4 in Europe again, and this jumps up 8% I think, or plus numbers anyway in Q3, Q4. We've adjusted. We're now operating at a lower level to last year, but we see things improving in H2. Of course, this has to come through because inflation, because of the war, because of many, many issues. There's reason to be pessimistic, but underlying requirements of extrusions and aluminum in our markets is super strong. Personally, I'm confident we'll go through another dip and a recovery, but it will recover. North America, again, in CRU, you see a much, well, almost an unnoticeable reduction or calming of the heavy market, strong market conditions.
Here you're talking single-digit numbers adjustments. I think - 4% as we go into end of year, Q4 now. Then again, it's difficult in Q1, but you're only sort of 0 - 5% in Q1, Q2, and then again it recovers in H2. Yes, it's adjusting. We've adjusted our cost base, but we shouldn't be over-alarmed about the ongoing consumption levels in our markets. The NOK 2.3 billion you mentioned, Paul will cover in more details, but if I recall, this is linked to the, you know, you could argue one-off premium opportunities that were in the market, mainly on the billet shape premium. I think half of that was in my business, my business area with my 1.2 million tons of capacity.
In the U.S., we still see strong premiums for next year. In Europe, it has calmed a lot. That's part of our adjustment to normal operating numbers in the cast houses. Again, not alarming for me, and even though it's reduced, the billet premium numbers for me are still reasonable numbers for us to earn returns on.
Okay, thanks. just piece, yeah, just to follow up on your comments around the sort of sharp fall in intake. Your sense of the customers, would it be fair to say they've probably destocked their inventory now? Is that a fair assumption based on that comment?
Yeah, that's what I feel. We saw reductions, probably the last three months of like - 20%, - 25% on order intake. The main impact was on the lead time. It was just coming in from record, low levels in weeks to more normalized levels. My industry typically is running on two, three weeks lead time. In the height of the activity, these lead times went from three weeks to like six months. Customers are placing orders, of course, forecast demand orders for seven months and eight months, and that's when it gets a bit misty.
Okay, thanks. Just one final question from me on the extruded products business, if I could. The valuation on the recent acquisition you just announced about 5x EBITDA, seems quite reasonable, but obviously that's coming off a post-COVID recovery number. Can you give us a sense of the valuation on a sort of normalized EBITDA basis?
I think the numbers we're referring to 2021. Of course, we see the numbers for 2022, which are higher than 2021. 2021, really looking at the history, was more normalized in terms of the operating numbers for that business. I'd argue it was a low multiple on quite normal numbers. Next year will be tough, like everyone in Europe, for H1. Building systems, particularly for B and C. I'm less worried about the casting and the extrusion because we have opportunities with our customers, especially in automotive, to utilize that capacity, especially on the 12-in press.
Super. Thanks.
Hi. Yeah, Ioannis Masvoulas from Morgan Stanley. Couple of questions from my side. The first, I guess, adding to Danielle's question around your confidence in the technology side of things. Can you talk about the Karmøy, the pilot plant that you were working on a few years ago with a target to bring power intensity down to 10 MWh over time from 14? I don't see that being a key focus right now. If you can give us a bit of background there, that'd be very useful.
Sure. The Karmøy technology pilot has been up and running for quite some time. We've met all the targets that we set out, both in terms of production tonnages, if you like, but also on the energy efficiency of that pilot. That's all signed off in a way. That's producing according to what we expected it to. The question for us, of course, is more, you know, at what point will we build more capacity in terms of primary capacity? On what basis do we do that? Do we build it on the new HalZero technology, or do we build it and expand, for instance, the Karmøy pilot technology and then build CO2 capture next to it?
Still too early to be a judge of which one will be the most relevant solution, but that's part of what we'll be discussing over the next couple of years.
I see. There is a capital-intensive process switching to the new technology.
Yeah, the new technology, when we look at HalZero, the estimates we have currently is that the CapEx per ton will be roughly the same as building a whole Héroult smelter.
I see. Okay. Great. Thank you. Just a second question around low carbon premiums. If we compare REDUXA to CIRCAL, you get about a 50% reduction in CO2 intensity. How does it translate to a high premium? Do you get 2x or 3x the premium when you sell CIRCAL relative to REDUXA? Just give us a rough idea, that'd be very useful.
We will not comment directly on the premiums. That's sort of the negotiations we have with the individual customers. Just to give a small hint, you will find some of the benefits of that in the commercial improvements program in Hydro. That's partly where you will find sort of the gains from our greener product sales.
Thank you.
Any other questions? I think we have room for one more.
Kenneth Sivertsen from Pareto. Just one quick on the alumina market. It seems a bit down and I guess, given the cost curve that a lot of losing money. Have you seen anything on the supply side that might balance out the market?
Yeah, we see it, you know, there's been gradual reductions in the alumina, you know, capacity's been taken out. On the primary side, they've also taken out capacity due to the energy situation. It's kind of been slower than we anticipated. You know, generally if you look historically, alumina has adjusted relatively quick because of storage issues and the way it's kind of set up. Now it's been a different situation. You know, we are waiting more or less for who's going to, you know, cave in because I mean, when you produce with today's raw material cost, there's a lot of refineries underwater.
Thank you. Going to recycling, it seems to be even more important, going forward for long term. Is it on the table just with separate in its own segment? Is that something you're considering or is it too integrated?
I think as of today, we do or we will do recycling in three different parts. We do recycling within Paul's area, important in the wall-to-wall cost sources that he has directly influencing the extruded results. In my area, we have the independent recyclers, five in Europe, two in the U.S., one to be built or on the construction. We will also do recycling in the primary cost sources. To sort of, to separate that out and to do that as one reporting unit, I'll find probably be challenging in the short run at least. Expect it to be as it is.
Thank you.
Great. Thank you very much. We will have another break, and we'll be back here at 11:20 A.M. Thank you.
Eivind, lunch is over. Good day, all. It's a pleasure to be back after some years on the screen. It's nice to see familiar and new faces here in the audience today. Today is the highlight of my year. It's the day I have the chance to dive into the financial components of today's Hydro as well as the future Hydro. I truly believe that the sum of all the exciting initiatives you have seen presented here today positions and differentiates Hydro very well in the coming years, and even decades, with potential for satisfactory returns over the cycle. I will go through the numbers that support this. The main message is the same since 2019, as we continue to lift cash flow and deliver high returns, supplemented with good distributions to our shareholders.
The outlook is more challenging than this time last year. I will go through how we are addressing this in the uncertain markets while also working to maintain and strengthen our original 2025 targets, as well as setting new and ambitious 2027 targets. Let's first here start with a summary of the last 12 months, which I must say has delivered impressive results. Apart from Bauxite & Alumina, all business area have increased returns with our strategic growth areas of Recycling and Extrusions contributing significantly, in addition to very solid returns in Aluminium Metal. The earnings potential from our energy business in times of tight energy markets has also been very evident. 27 percentage points, 300%, 400% in respective improvements in ROACE, EBITDA, and free cash flow since 2019 deserves some celebration.
There has also been a significant increase in distribution through both dividends and buybacks for yourself during the years. All this has resulted in a solid balance sheet, well within targeted levels. However, going forward, you should expect us to aim for an adjusted net debt of around NOK 25 billion over the cycle, in line with our capital update, structure update target from the second quarter of this year. This is to ensure an efficient balance sheet. We see very high volatility in current revenue and cost drivers, and the resulting net margin for a large part of our industry makes it challenging to fully understand the high cost capacity that is still online.
Acknowledging that there might be changes to the supply side in the months to come, as well as the demand side, we have here converted the main changes in revenue and input factors into a 2023 earning scenario. If market spot prices realize at current forward curve, except for energy, where we here have used the last 12 months, and we take the last 12 months from Q3 as a starting point, we get a reduced price and currency effect of around NOK 15.8 billion. We then assume a normalization of recycling margins to the NOK 1.7 billion level, which is close to what we have in 2021, and we also take 10% lower European extrusion demand, flat demand in North America, in line with CRU expectations, we reduce by a further NOK 2.8 billion.
If we normalize energy production levels up to 9.4 TWh, add the positive effects from the Røldal-Suldal DA process that we've been through, we increase results with another NOK 3.9 billion . Finally, if we add our planned improvements and growth, this high level sensitivity analysis would result in a full-year result of around NOK 29 billion . The difference between this chart and the one Hilde showed earlier is that this is for 2023, so it only takes into account those improvements. There are many smaller and larger items which have not been taken into account. However, this should give a good indication.
Even in the current market environment, next year is looking strong from an historical perspective, and the natural hedge from our energy business area makes us robust in the current market environment where lower demand is partly driven by the very high energy prices. What is certain is that this will not be the actual results for 2023, and there is both an up and a downside risk to this number. It is important that we address both the short-term uncertainty, but also the long-term opportunities. The financial framework that we introduced in 2019 has been a good compass to navigate several different market environments, from COVID, to the best integrated aluminum margins we have seen since 1988, to the current war and energy crisis.
This framework has developed over the years, strengthening the focus on sufficient transparency, understanding, and stretching targets within sustainability metrics to ensure that we improve our cost of capital advantage through sustainable financing, good ESG credentials, and also lower the risk in our portfolio. The framework is used actively in the current market environment. Those who know me well, they know that I'm not a big sport fan. However, I would like to use the sport analogy of playing defense and offense at the same time as a description for how we work today. Playing defense is done through the main short-term improvements and mitigating actions.
These include a strengthened and extended improvement program into 2027, ambitious operating capital reduction targets for 2023, concrete contingency measures already in place, but with more potential addition in the toolbox, 25% of our integrated aluminum market margin secured for 2023, 2024, and now also to some extent for 2025. Since we have played defense well, we also have the ability to play offense, which for us is both to deliver and stretch our strategic growth ambition and address opportunity in the current market environment like, for example, the recently announced Hueck transaction in Extrusions. We will continue our clear framework for capital allocation, we will deliver on our strategic CapEx roadmap to strengthen our position as the leading low-carbon aluminum producer, capturing the above 20% annual demand growth expected for greener aluminum.
This is balanced with our newly communicated capital structure target, ensuring continued healthy distribution to our shareholders in the coming years if the market allows for it. Finally, as for the last three years, we will ensure that every business area has clear profitability roadmaps to exceed the respective return targets. Let's start with our current improvement ambitions, including the improvement program, commercial ambitions, and the strategic growth initiatives. We will now stretch the improvement program to NOK 11 billion for 2027, whereof 0.7 comes from a rebasing of the program to reflect a somewhat healthier margin level than the previous 2018 baseline. Just as we see higher inflation impacting CapEx, we see the current market environment impacting the margins that we generate from our improvements.
In addition, the new program also includes new portfolio and scope added since 2019, and the commercial ambitions are stretched to NOK 3 billion in total, and the recycling growth target to 3.1-3.5. Improvements that are remaining to be delivered, they fall within three main categories. First, we have NOK 2.4 billion from operational excellence. Here, the majority of the bauxite and alumina improvements will come from the Alunorte fuel switch project and other energy efficiency initiatives. In aluminium, metal and extrusion, the main improvements are delivered through continuous improvements of operational parameters in the different plants enabled through our business systems. The second category is procurement. When we launched the procurement targets in 2019, they were around NOK 400 million.
We have since then worked systematically across and within every business area and have stretched the ambition year after year. The total amount of procurement savings is now at NOK 1.4 billion, where NOK 0.6 billion of these still remain to be delivered. This is a NOK 0.2 billion increase from last year, where the majority comes from initiatives in Hydro Extrusions. We have improvements in fixed cost, where the majority will come from Aluminium Metal with efficiency improvements through robotization, automation, and some from Hydro Extrusions through energy efficiency measures which impact fixed cost. Hydro Bauxite & Alumina is largely stable as inflation above index, higher overburden, and the RS costs are offset by other fixed cost improvements. This requires some CapEx, and the estimated annual CapEx to deliver on the remaining improvements is around NOK 1.2 billion per annum. We have the commercial ambitions.
These are highly dependent on developments in the market. The current market environment is making it more challenging in the short term, but we have stretched the target by NOK 0.5 billion to 2027, primarily coming from commercial projects in Extrusions which are being finalized after 2025. The majority of the remaining improvement in aluminium metal come from new products and increasing revenue from greener products. In BNA, from achieving higher premiums from alumina or hydrate, and in Extrusion from market share growth. The estimated annual CapEx to deliver on the remaining commercial improvements is estimated around NOK 0.4 billion per annum.
Lastly, it's the recycling ambitions now increased to $3.1 billion-$3.5 billion for 2027, which is lower than the record 2022 earnings, but $1.4 billion-$1.8 billion more to deliver compared to a normalized margin level as we, for example, had in 2021, which on an exclusion ingot premium is not that far from what we're seeing in the market today. Although it is difficult to predict the market, there is consensus that the first quarters of 2023 will be more challenging than the latter ones. CRU expects European primary demand for Q for 2023 to decline around 15% year-over-year in Q1, around 8% in Q2, and then slight increases in Q3 and Q4.
Since we announced in September the curtailment of capacity at our Norwegian smelters Husnes and Karmøy, we have reduced annual capacity by around 100,000 tons. We aim to further reduce to around 130,000 tons. The curtailments are in line with the weakening market demand. We expect to restart when the market picks up again. However, if there is a further market weakening, further curtailments may be required. The excess power that we don't use is sold in the market through a combination of spot and forward contracts. Around 50,000 tons of primary cast house capacity is currently curtailed, together with around 45,000 tons of recycling capacity in metal markets and 80,000 tons in extrusions. Note that the curtailment in extrusions are also a result of high level of inventory during the fall months.
The capacity that we have in the standalone cast houses and the remelters are the short-term swing capacity that can quickly be ramped up if markets were to rebound sharply, as we saw after COVID. We have worked on improving portfolio flexibility over the latter years, allowing us to switch between value-added products in periods of falling demand, which is especially valuable in periods of low alternative value of power. In addition to adjusting capacity to market demand, we have been securing margins and raw material exposure. This includes a certain amount of gas and power hedges in place for part of our 2023 exposure in remelters and extruders, integrated aluminum margin hedges in place for volumes in 2023, 2024, and 2025 for BNA and aluminum metal, and 50% dollar BRL hedges in place for Alunorte and Albras for 2023 and 2024.
Delivering on our improvement and growth ambitions requires capital. In the current market environment, we expect a significant amount of capital to be released from inventories and CO2 compensation in the coming quarters and year. The CO2 compensation for 2021 is due to be paid this week. From 2019, we have worked targeted to reduce inventories across the company following a strong build in 2018 and in the following quarters. Inventory days, they gradually reduced. However, the monetary values were increasing in line with the strengthening price environment. This was also further supported by strong demand and raw material supply challenges. From the start of 2022, a combination of increased safety stocks, especially material which is exposed to China, and seasonality started reversing the positive trend. Into the third quarter, the market started falling faster than production, driving increases in relative and absolute inventory level.
This is in addition to a large increase in CO2 compensation receivables. We are now working aggressively to reduce inventories again, and we expect also a gradual positive pricing effect if prices remain where they've been as of late. We have set bottom-up ambitions per plant, per business area, resulting in an estimate of 46 days at the year end of 2023. If you use current market prices, this would result in a cash effect of around NOK 8 billion at current price levels. If we also spend some time on strategic hedging, we started the strategic hedging activity in 2020 following a long period of non-satisfactory margins, returns, and cash flow.
Following the launch of our 2025 strategy and ambition to strengthen our position in low-carbon aluminium, we wanted to ensure a more robust position in the lower parts of the cycle to allow delivery of our long-term objectives, while also increasing the probability of delivering on our larger targets over the cycle. As a CFO, I'm not happy with blaming the market in periods of low returns. I believe we should use the full toolbox to deliver on our return requirements. A key element of the strategic hedging activity was not purely to sell LME forward, but to lock in as large an extent of the integrated margin as possible.
That is the reason why despite the strongest markets since 1988, our strategic hedging portfolio is NOK 1 billion negative until November 2022, where the NOK 4.2 billion negative impact of aluminium sales is to a large extent compensated by NOK 3.1 billion gains on the raw material side. Looking forward based on current exposure, we are not NOK 2.9 billion out of the money on LME, NOK 100 million in the money on currency, and NOK 400 million in the money on raw materials. This leads to a total NOK 3.4 billion out of the money on the activity since inception. On the right-hand side, you can see the current integrated margins where we have locked those in, and also the positions out in time, where the long end of the curve is closer to the actual market.
With our strong starting point, our implemented temporary and medium-term contingency measures, and our integrated strategic hedges, we are comfortable to continue to play offense and allocate growth capital according to our strategic modes, which remain the same as they did in 2019. We are not scaling back return-seeking capital, but rather continuing with our selective growth projects to ensure that they are up and running and ready to supply the coming strong growth for low carbon aluminum. As in latter years, return-seeking capital will primarily be allocated to ensuring a low cost and carbon position upstream, selective growth in recycling and extrusions, and supporting the development of our new energy growth areas until we have raised the capital for Hydro Rein and Hydro Havrand.
Let's then have a look at what this means for the actual capital allocation, probably, the favorite slide, of the audience here today. If we start with 2022, we indicated at our Q3 reporting that we might push some CapEx out into the coming years in light of the current market environment and compared to our guiding of NOK 12.5 billion excluding Rein, which we, at that point in time, guided for at NOK 1 billion-NOK 1.5 billion. We are now estimating around NOK 10.4 billion for 2022, with NOK 1.2 billion on top for Rein.
If we revert to our 2023-2025 guiding from the Capital Markets Day 2021 of around NOK 10 billion, we estimate around NOK 1.7 billion of additional inflation and currency effects compared to last year based on the currency rate which is close to current market conditions. If we also add the NOK 2.1 billion of carryover from 2022, this brings us around NOK 13.8 billion. If we include some internal reprivatization or reduction of CapEx, we end up at around NOK 13.5 billion before M&A and Hydro Rein investments. We recently announced the acquisition of Hueck Extrusion and also have the ongoing Alumetal transaction of around NOK 2.3 billion, bringing us to a total potential of around NOK 16.5 billion, including M&A.
If we are not successful with the ongoing capital raise for Rein in 2023, this is another NOK 2.5 billion on top. Havrand is expected to be fairly limited in 2023. When it comes for our guiding to 2024-2026, this is NOK 2.5 billion higher than last year, reflecting somewhat higher inflation, similar currency effects as for 2023, also a strengthening of our growth ambitions in recycling and in extrusions. The profitability and robustness on a large share of our return-seeking portfolio is expected to be strong. I will get back to the specific details in a couple of slides. We estimate that around 40% of our CapEx is classified as aligned according to the EU taxonomy.
This is in line with our estimates last year, but since then, we have confirmed that hydro power investments in Norway are now aligned, and also a higher share of recycling investments are expected to be aligned. However, since a higher share of total CapEx due to inflation is in non-aligned areas, the percentage is relatively stable from last year. As in 2021, we expect the figure to be closer to 55% if we are able to include our investments in fuel switch projects and in batteries. Let's also have a look at the development in expected sustaining CapEx in the short and the long term, as this is the CapEx that is necessary to sustain our operations and where we have less flexibility to make adjustments in the short term.
Here, we estimate to end the year around $1 billion lower than what we guided for, lifting the estimate for 2023. When we also add $1.1 billion here in inflation and FX and make some further postponements into 2024 and 2026, we end up at a level of around $8 billion for 2023. For 2024-2026, the totality of extraordinary projects is somewhat lower, reducing our guidance to $7.5 billion, and even a further reduction of around $0.5 billion when looking at the long term in real 2026 terms. The main deviations from our long-term guidance of $5.5 from last year is around $1 billion in FX and inflation, in addition to around $0.5 billion which is related to the strategic growth portfolio, which also needs to be sustained when up and running.
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. On the chart you see to the left here, we have taken our planned net non-sustaining investments for the period 2023-2026. We start with the first category in green, these are clear climate reducing investments excluding recycling. This includes the fuel switch project at Alunorte, the L boilers, which combined are just expected to deliver around returns around the 10%-20% range, but much higher at current spot prices. The L boilers in Alunorte didn't take many months to pay down when you see the market prices for energy now.
It also includes CO2 abatement CapEx in aluminum metal, which is expected to deliver an attractive upcharge premium when we produce products on the basis of this. The next bucket is the recycling investments, where projects range from 15%-30% IRR for a business segment which has an estimated nominal cost of capital of around 7%. The returns here have been strong and growing, and the CapEx per dollar of NPV is very attractive in a portfolio perspective. Extrusion investments are similar, but even with higher expected returns, as several of these investments give improvements across all three categories: fixed cost, operational efficiency, and of course, commercial value.
Several of the extrusion investments will be able to deliver above their cost of capital purely due to the reduction in fixed cost and increased efficiency, which gives us comfort even in a scenario where the market further deteriorates. In total, the project portfolio, as we see the world today in extrusion, ranges between 20%-35% IRR. We have the net CapEx estimated to be spent in Rein, where we are targeting equity IRR of 10%-12%. In Havrand, given the current maturity of the portfolio, the estimated net CapEx is estimated to be low in the short term, and we'll get back to that as it matures. For batteries, we estimate an average nominal cost of capital around 8%. There are large variances within the different segments in the battery value chain.
Of the projects we have in the pipeline, we are looking at IRRs of around 10%-20% based on what we see today. Finally, we have other return-seeking investments, which includes upgrades to the Norwegian hydropower plants and the most profitable projects at our smelters. 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 these or not, and if the market outlook or other factors changes these expectations, then we can pull the brakes. As we see the world today, these are vital to deliver on our EBITDA and return ambitions, which I will revert to a bit later. One of the most important areas to work on to improve our relative cost of capital is within sustainable financing.
Last year, we announced that we were developing our sustainable financing framework. I am therefore happy to report on three developments since last year. Firstly, we launched our sustainable financing framework in the second quarter. This year incorporating both green and sustainably linked financing frameworks, which can be used for future financing projects with two specific KPIs that will be used. This is our ambitions to reduce carbon emissions, and it's also our ambition to increase capacity for recycling of post-aluminum post-consumer scrap. The framework received a second-party opinion by CICERO Shades of Green, giving the framework the second highest ranking of Medium Green with our governance and structure and processes being ranked as excellent.
Secondly, supporting our new capital structure ambitions, including a target to keep our gross debt level relatively stable, we established an EMTN program to streamline future bond issuances, allowing rapid utilization of our new sustainable financing framework. Finally, we were pleased to recently use both our sustainable financing framework and the EMTN program in the recent issuance of NOK 3 billion sustainably linked bonds, fixed and floating with a six-year tenure. These were the first SLB issues in the Norwegian corporate investment grade market. The SLB priced below initial price guidance and below the fair value curve, which could be seen as a proxy for the SLB pricing effect. As we gradually transition from regular bonds to greener options, we expect the pricing benefit gradually to spread across our total gross debt portfolio, making a noteworthy difference as long as we deliver on our greener KPIs.
To underpin our position as an industry leader within ESG, it is also important that we live up to external expectations while also striving to improve our position year after year. We have been striving for transparency and good ESG reporting for more than three decades. Good reporting is not enough. The actions we are reporting on must be integrated into our business strategy and also our risk management processes. We are proud to be consistently recognized by leading ESG raters. Some even say we are the leader in our industry, and still, we know that staying among the best requires continuous work.
I am pleased to share that we have further improved on several ESG ratings since 2022, the one I'm the proudest of is the Morningstar rating, Sustainalytics, which measures ESG risk level. We are now rated as low ESG risk as one of only three companies among the 200 companies in diversified metals. Let's move to the sum of everything we have been through today, our profitability roadmaps. Here we visualize what Hydro does to at least, but preferably well exceed our 10% over the cycle through ROACE target and what the different business areas do to meet their respective return targets. In addition, we'll go through some upside and drivers and downside risks for value creation in the period to come.
These scenarios show adjusted EBITDA, cash flow, and ROACE potential after we have delivered on the planned improvement measures and with different pricing scenarios in 2027. These scenarios are not forecasts, but a simplified indicative long-term potential based on sensitivities. In the additional information in the book that you've been given, you'll find a detailed description of the assumptions that have been used for these calculations, as well as a list of additional factors that will influence the results positively or negatively and that are not taken into account here. At the end of our third quarter, we had around NOK 116 billion in capital employed, with almost 70% allocated upstream and around a quarter in extrusions. We have adjusted the EBITDA for the last 12 months in Q3 as a starting point, where we are currently at approximately 27% ROACE.
If we adjust the prices further to current forward prices, ROACE decreases to 16%. At five-year average, we see an ROACE of 13%. If you use a third-party analyst, the CRU, and their expectations, we see a ROACE of 19%. This of course indicates that our returns are very much dependent on market and macro developments, but at least these scenarios indicate significant or satisfactory profitability based on what we are targeting within the company today. The cash flow scenarios are this year updated to show the cash flow after long-term sustaining CapEx, tax, lease payments, and interest expenses, indicating cash flow available for return seeking and growth CapEx, and also shareholder distribution.
If we look at the upside drivers and downside risk, I think of the most interesting upside scenarios is the additional pricing benefits on top of what we, I would say, have conservatively included here in our greener portfolio. As we move down on the carbon footprint closer to near zero, we expect exponential developments in premiums. The macro environment could be subject to even tougher times ahead. However, we could also see a scenario with tight supply demand for aluminium, as was expected before the recent war broke out. In addition, in line with the capital allocation framework, we will continue to review our portfolio to identify non-core and non-performing assets, and we will only be executing on growth projects with high return potential as we have been through today.
On the risk side, in addition to general macro and financial uncertainty, operational disruptions, project execution, availability, ability to deliver on improvements may reduce this potential. Inflation pressure could rise and/or continue at this very high level going forward. For Hydro to reach our overall ambition, each and every business area need to do their part and deliver above their return targets. In Bauxite and Alumina, we have 23% of Hydro's capital employed, and we have a return target of 10%. Here we have had the return of 7% on average since 2018. The low returns have been attributable to challenges in the aluminum market, the embargo situation, and also other operational challenges, which we now believe that we have reduced the risk of happening again through different mitigating actions within our operations, but also on the social side.
Although the last 12 months rolling and planned improvement potential indicate a ROACE above our return ambitions, the current market prices and the prices we have experienced over the last five years indicate a challenging profitability situation. If you use CRU's long-term forecast, we have a more acceptable profitability. Although we do not believe that the current margin environment with 50% of refineries being below water is sustainable over time and something needs to give, the past and current returns from B&A are not good enough. We are working across many axes to improve this going forward. Several of these are on the way. You have the Tailings Dry Backfill reducing CapEx. You have the fuel switch project with very strong contributions at current spot, and you also have existing commercial improvements, like for example, adjusting the balance between alumina and hydrate.
However, going forward, one of the main upside drivers also here is the ability to get better prices for alumina, both due to exceptional quality and the positive impact it has on high performance melters, but also due to the fact that we are moving more quickly towards the bottom of the global alumina carbon cost curve, where we are already placed at the first quartile and moving into the first decile. While we have reduced the risk of operational disruptions and specific country risk over the latter years through asset integrity improvement and being a better neighbor, these are still present, and we need to continue to manage them well. If we then move to aluminum metal and metal markets, we see a very different picture. Aluminum metal accounts for around 43% of Hydro's capital employed, with additional around 5% allocated to metal markets.
With 10% return target, Aluminium Metal reached an average return of 14% since 2018, above their target. If you look at the last 12 months rolling, ROACE reached 38%, digitalizing the very strong markets we have just been through. Metal Markets as a separate reporting area has also delivered good returns of 27%, well above their return target of 7%-8%, due to good results and profitable growth in recycling, combined with still a relatively small share of capital employed. Going forward, in the different market scenarios, the combined ROACE for Aluminium Metal and Metal Markets will be between 12% at last five-year average to 21% using CRU long-term assumptions.
As for Hydro, I believe the most significant upside scenarios are represented by the current steep cost curve, increased focus on carbon footprint, and the fact that around 50% of smelters are currently on the water. On the risk side, even though we have several mitigating actions in place, safeguarding our relative position is important, and in certain demand environment represents an absolute risk. Although the most recent changes was a net positive for aluminium metal, it could also be a net negative. Extrusions account for around a quarter of Hydro's capital employed. Since 2018, Extrusions has delivered a ROACE of around eight, in line with their return target.
If we look at the last 12 months rolling, Extrusion has achieved a ROACE of around 11%, significantly above the average last 12 months and its return requirements. Looking at the ROACE potential, the identified improvements will lift Q3 last 12-month rolling ROACE from 11%-16%. As with the other business area, further upside in Extrusion is also represented through greener product pricing and volumes, but also organic and inorganic growth, as we have seen examples of earlier this week. On the risk side, in addition to market and operational performance, the key risk for Extrusion is inflation pressure and the current macro environment. Moving to our Energy business area, Energy accounts for around 8% of Hydro's capital employed.
The Energy business has seen a ROACE of around 20% since 2018, well above the return target of 7%-8%. If we look at the Q3 last 12 months rolling, Energy has delivered an EBITDA of NOK 5.1 billion, significantly above the average since 2018. There is an additional upside if we normalize production volume and add the positive effect from the Røldal-Suldal case, lifting EBITDA to NOK 9 billion. However, market scenarios based on the long-term forward curve or the prices we've seen the last five years illustrate a downside with EBITDA between NOK 1.4 billion-NOK 2.6 billion, this doesn't include any price area differences or the additional upside we see in commercial effects going forward.
Further upside in the traditional energy operations could come from additional growth opportunities, commercial and operational improvements, stronger energy markets on the back of increasing demand for renewable energy at a high pace. On the risk side, markets could, of course, always go in the other direction, and we are exposed to regulatory and framework conditions, including tax. When it comes to the new growth areas, we believe they represent an upside from a valuation perspective as we build substance across the different ventures. In the battery business, we have seen two times return on invested capital over the last 24 months. On the targeted investment levels of NOK 2.5 billion-NOK 3 billion, we target a minimum of three times return on invested capital.
As we've seen from the cash flow scenarios on Hydro level, there is sufficient room for both more return-seeking growth or additional shareholder distribution on top of the minimum of the dividend policy in most scenarios. We aim to maintain competitive shareholder distribution going forward also. During the period of 2014 - 2021, we have delivered on the policy and returned an average dividend yield over the past seven years of around 3.8%. This is lifted by the yield of 10% for 2021 earnings, which stands out in an industrial context, but so does also our historical yield.
We were pleased to update our capital structure policy and targets in Q2 this year and also to distribute in accordance, including the introduction of a share buyback program for the first time since 2008, which we have completed 41% of at the end of last week. For 2022, we aim to utilize this framework, and as a starting point, we take NOK 23 billion in adjusted net debt because this reflects the earnings from the higher part of the cycle.
We add the buffer of around NOK 4 billion to this to cater for the two M&A transactions which have been announced this year, where the cash effect will most likely come next year, which is Alumetal and Hueck. This buffer also includes a certain amount to reflect the uncertainty which we see in operating capital release at year-end, and that is what gives the current guidance of 50%-70% of adjusted net income. This will be a combination of dividends and share buybacks, and the final split will depend on the total distribution. Final distribution for 2022 will be proposed at the release of our fourth quarter in February 2023, and proposed approved by the annual general meeting in May 2023. With that, I would like to welcome Hilde back on stage for her final comments and our last Q&A.
Thank you, Pål . As a team, we have been looking forward to share with you what we have been working on this past year. All good things must come to an end, and that includes this capital market day. To sum it up, I would like to round off with our investment proposal. We have delivered on the broad range of the ambitions we set out in 2019, and we have significantly improved our track record on relative shareholder value creation. I truly believe that we are currently in a position to continue to do this going forward. We have a low and robust cost position with an ambition to further improve, and in an industry with a steeper cost curve. This can cater for good and improved margin generation.
Aluminum demand is, as we have talked about, is supported by the megatrends, and the demand for low-carbon aluminum looks especially strong and is expected to increase from current estimates. To capture this demand, we have a realistic pathway to near-zero aluminum. An increasing portfolio of low-carbon aluminum products demanding higher and higher premiums as the carbon content decreases. We also have a large portfolio of profitable growth projects, allowing us to strategically allocate growth capital to the parts of the value chain which we believe will lift but also make our returns more robust in the decades to come. Finally, this is all supported by a solid financial framework ensuring financial strength and flexibility, while also enabling competitive shareholder distribution.
I believe Hydro has a unique position to create value in this new reality based on the factors that I just mentioned. I look forward to seize these opportunities, increasing value to all stakeholders. Thank you. We have a Q&A.
We have our final Q&A. Should we start here, maybe?
Hi, Dan Major from EBS again. Perhaps a few questions on just some of the assumptions into your spots for indicative EBITDA estimates for 2023. The first one is how much benefit from the fuel switch project you expect to embed in next year? You obviously indicated the NOK 80 million a quarter on a medium term. What's the assumption, or should we be thinking for 2023?
This does not include any fuel switch, so that will come on top of that.
Just to be clear on that, I mean, the run rate of EBITDA at $320 alumina price is not a lot. Is that what we should be expecting in that NOK 28 billion, that there's not much contribution from BNA based on spot?
If you use the current spot prices, the spot prices move a lot from day to day. Let's say the one we have when we set the Q3 2022 cost curve, then you have a noteworthy upside from the fuel switch project on top of these numbers. This is based on the portfolio as it looks today, and then we stress it with market prices, not including the fuel switch effect in the base, but it comes through the improvement program effect. That is done on more conservative market prices, so we have an additional upside from that.
Okay. Just to clarify on that. Within the NOK 29 billion-
Mm.
What alumina price are you factoring in?
in the NOK 29 billion-
How much?
We have an alumina price of $325.
That would imply not much EBITDA contribution from Alunorte.
No.
Yeah. Very clear. Thanks. Just a second one, similar question on the premiums, the realized premium on a group basis. What are you embedding in that NOK 29 billion?
Very close. We've taken the spot market premiums that we see now, and we've run them through our portfolio. I think we're around $410-$415 mark as realized premium, which is quite close to what you, for example, saw in 2021.
Okay, thanks. Yeah, just final one from me. When we look at the cash outflows, you've a provision for the NOK 4 billion of M&A, internally, do you have a sort of target, or how do you look at the incremental bolt-on acquisitions in extruded or elsewhere in the portfolio? How should we be thinking about that going forward?
It's a good question, and we evaluate it on a case by case and portfolio perspective. It's we have as any good companies, we have things that we think make more sense that we have on the radar in a situation where the market allows us to at least consider it at a decent price. Other things, they come up, and then we review, and then we see do we have the capacity for it? Is there other things that we should down prioritize in order to put this in? We don't have a clear M&A ambition for any given year.
We have an ambition, to, for example, increase a certain amount of recycling capacity, and part of that we filled through organic and part inorganic growth. In extrusion, it's more on a case by case basis.
Super, thanks.
Just a couple of questions from my side. Again, to Dan's point around the EBITDA bridge for 2023. In terms of the other assumptions, what CO2 compensation are you assuming there? Secondly, what price area gains are you assuming as well, if any?
Similar as of this year.
Both the CO2 compensation, because you were guiding for a step up, next year.
You also had some extraordinary CO2 compensation this year related to back in time. They will net each other out to some extent, but there will be some difference.
Very clear. Thank you. On the slide where you show the IRRs across the different initiatives, I noticed that for Hydro Rein, you show 10%-12%. That's levered or unlevered IRR?
That is on the levered IRR. That is everything that we do throughout the project. That's from development phase through project execution, potentially including fund dams also. That project is potentially... That IRR is potentially different from the actual project IRR. That's what you generate out from the total journey on a given project.
Understood. Maybe one last question from me on the carbon border tax. There was some, well, development this week with the EU, but just wanted to figure out on scope two, is there any clarity on what the latest plan assumes? Whether it's included or not, because obviously that's gonna have an impact on your CO2 compensation over time.
Yeah. That is not clear. I mean, the scope one is included, still we wait for more confirmation related to the indirect and to the scope two.
Thank you.
There was a question over here.
It's Qiang Zeng from BNP Paribas Exane. Could you please break down for us the components behind your NOK 600 million assumptions on inflation built in 2023 CapEx by energy, raw material, wages, and et cetera? Could you clarify, have you assumed this 2022 inflation to stick through to the whole of 2023?
I think you will find that we've used what is probably a conservative view on inflation. The current level that you're seeing in 2022, we have not included to the full extent. We've taken a top-down view on the different regions where we are exposed and used the KPI in inflation, not the specific inflation per material, et cetera.
Right. What is the inflation component in your 2024 - 2026 revised CapEx number?
I guess it varies between 5% and 10% for the different areas.
Thank you.
Thank you. Is there any other questions? There's one.
Yeah.
Yeah.
Thank you. Two questions, maybe give Pål a break on this round. On the M&A front, you touched on it, but I guess I'm trying to think about what deals you are thinking about going forward. Is it mainly going to be focused on extrusions and recycling, or would you at some point consider anything more upstream? There's nothing in today on Qatalum. Will you still own that in five to 10 years?
Should you take that first, or should I?
You can take both.
I think as Pål said, the strategic modes are still guiding our allocation of growth capital. We are still in the sustain and improve mode in the upstream part. I think if you look at the Western world, there are hardly any new builds on the table in terms of building new smelters because of the technology race that is ongoing in terms of finding a technology that can produce without carbon in the electrolysis. We are also holding that for that reason. It is like you say, it's in recycling and extrusion that we do have growth, see growth opportunities, at least as we see it now.
When it comes to Qatalum is a good plant. It's has a long-term gas contract. What we're working on with the Qatar Petroleum is to see could there be opportunity to blend in more low carbon or renewable energy in terms of solar power so that we can get the carbon footprint down from Qatalum. Other than that, we will be an owner in Qatalum for the next five to 10 years. Thank you. Yes.
Hi. Sam Harrison from Affirmative Investment Management. I just wanted to ask about the sustainable financing framework, if I could. I thought it was interesting that Hydro published both a sustainability linked and a green bond framework. I just wanted to ask if you could explain sort of what the, what drove the decision to issue under the sustainability linked framework, and can we expect to see any green bonds issued in the next year or so? Thank you.
Yeah. For this current purpose, we viewed the sustainability linked bond as the one fitting our needs the best. We are evaluating green bond issuance also in the time to come.
Thank you. Are there any other questions? No? We would just like to thank you very much for joining us today, and we hope that you will join us for lunch and the roundtables, starting at one o'clock. Thank you very much.