SSE plc (SSE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you for standing by and welcome to the SSE Full Year Results 2019/2020 Conference Call. [Operator Instructions] I must advise you that this conference is being recorded today. And I will now like to hand the conference over to your speaker today, Alistair Phillips-Davies. Please go ahead, sir.

Thank you, Sandra, and good morning, everyone. I'm Alistair Phillips-Davies, Chief Executive of SSE. And with me, our Finance Director, Gregor Alexander; and Energy Director, Martin Pibworth. We're keeping a safe distance from each other here in Perth, and we're grateful to you for joining us wherever you are in these exceptional times. Later, we'll take questions. But before that, we have a 3-part presentation. In part 1, we'll review '19/'20 as a year of progress for SSE. In part 2, we'll set out SSE's comprehensive plan to respond to coronavirus and position the business well for the long term. And in part 3, we'll describe SSE's range of opportunities to contribute to green economic recovery and create value through the transition to net-zero emissions. SSE has a clear vision of being a leading energy company in a net zero world. That vision is more relevant than ever as we emerge from the coronavirus pandemic. And in working towards it, we're guided by 2 clear and related objectives: sustaining dividend payments on which pensioners and savers depend for income; and promoting the long-term success of SSE for the benefit of all stakeholders. These objectives are related because we believe that sustaining dividends through short-term adverse economic and business conditions will pave the way to long-term success. And the opportunities for long-term success are clear, especially in our core electricity networks and renewables businesses. They're central to the transition to net zero. And it's in these businesses, complemented by incremental value added to the thermal and customer businesses, that we're able to achieve excellence, contribute to a green economic recovery, deliver growth and create value through the transition to net zero. Before looking at results, I want to thank colleagues across SSE who've been working hard to support the safe and reliable supply of electricity depended on by the people and organizations leading the coronavirus response. With a strict focus on safety, the commitment of our key workers has maintained the reliability of our electricity networks and ensure power generation has been available to support the electricity system. As a responsible employer, we've worked closely with trade unions and agreed flexible working and retention of full pay over use of government's job retention scheme. So we have not furloughed any employees. And we're committed to the C-19 Business Pledge and its focus on customers, communities and suppliers as well as employees. So on behalf of the Board, I'd like to thank all of our colleagues in SSE for their commitment and hard work during these extraordinary and challenging times. Now for part 1 of our presentation, a review of '19/'20. Financially, our results represented a solid recovery from the previous year with increases in adjusted measures on operating profit, profit before tax and earnings per share. And overall, it was a year of progress. Strategically, the sale of Energy Services enabled SSE to become a company focused on the successful development, efficient operation and responsible ownership of electricity infrastructure required for the transition to net zero. Operationally, the establishment of SSE Renewables and the focused management structures for transmission and distribution and our other business units means we get the most out of specialist knowledge and insight and strike the right balance between empowerment and accountability. We saw this in our success in the CfD auctions for the offshore wind and in the quality of our RIIO T2 business plan. These businesses can contribute significantly to a green economic recovery. And after 6 years of continuous improvement, '19/'20 was our best year to date in terms of overall safety performance, wellbeing and environmental care. This year of progress has helped set us up for the long-term success, about which we'll say more later. Now I'll hand over to Gregor to cover the financial results, starting with coronavirus impacts.

Thanks, Alistair, and good morning, everyone. Coronavirus had 2 main impacts on our results for '19/'20: an estimated GBP 18.2 million reduction in adjusted operating profit, mainly as a result of reduced demand and revenue; and an exceptional charge of GBP 33.7 million, arising mainly through additional provision for bad debts in the customer businesses. In March, we said we expected adjusted EPS on our standard definition to be within the 83p to 88p range, first indicated in November's interims before any coronavirus impacts. Despite the GBP 18.2 million impact of coronavirus, adjusted EPS still came in within November's forecast range at 83.6p. The biggest positive factors driving recovery in the results were the restoration of GB Capacity Market payments, the lower EPM-related loss and strong performance in SSE Renewables. There was a net exceptional charge of GBP 738.7 million before tax, which covered 2 main areas: GBP 529 million on discontinued operations; and GBP 209.7 million on continuing operations, including the GBP 33.7 million relating to coronavirus impacts that I mentioned earlier, delivered us with an out of the money market-to-market valuation of GBP 231 million were novated to SSE Energy Services as part of its disposal to OVO. This benefit to SSE has been netted off against loss and disposal as part of exceptional items, reducing the loss on sale reported in November. In line with our March forecast, adjusted operating profit across our 3 regulated network businesses was down to GBP 776.7 million. In Transmission, adjusted profit reduced to GBP 218.1 million, mainly through phasing of allowed revenue, along with increased depreciation relating to ongoing CapEx. In Distribution, adjusted profit decreased to GBP 356.3 million, reflecting a net increase in costs, including increased depreciation and higher costs associated with supplying Shetland. In SGN, our share of adjusted profit increased to GBP 202.3 million due to Totex outperformance and additional commercial income. The quality of these networks businesses is shown by the regulatory asset value, which was around GBP 9.1 billion at the year-end. In line with our March forecast, SSE Renewables delivered a 24% increase in adjusted operating profit to GBP 567.3 million. Results benefited from a full year of output from Beatrice offshore wind farm. Profits also benefited from strong levels of production from hydro through operational reliability, excellent management of water and effective commercial deployment. Including 0.7 terawatt hours of constrained off wind, SSE had a record-breaking year for Renewables output at 11.4 terawatt hours. We've reshaped SSE to focus on renewables and regulated electricity networks, with quality assets that give SSE its fundamental resilience and each have key roles in the transition to net zero. Together with our 33% stake in SGN's regulated gas networks, they contributed 90% of our adjusted operating profit at GBP 1.3 billion and 85% of our adjusted EBITDA at nearly GBP 1.9 billion. Looking at other businesses, SSE Thermal returned to profit following reinstatement of GB Capacity Market payments and increased earnings from multi-fuel with Ferrybridge 2 coming online in December. The EPM result largely draws the line under the issues that arose in 2018. And in future, EPM should earn a small adjusted operating profit from providing services to other parts of the SSE Group. Customer businesses fulfill important strategic functions for SSE but had a mixed year, with good results for Airtricity but a disappointing result for Business Energy. This reflected the challenging market conditions we highlighted in November, higher non-commodity costs and increased bad debts not related to coronavirus. Results for Enterprise reflected the lower Telecoms profits after the sale of 50% of that business in March '19. Looking at pensions, the surplus across SSE's 2 schemes increased by GBP 54.6 million to GBP 341.7 million. A reduction in the value of the assets was more than outweighed by a reduction in the liabilities, mainly due to a fall in the inflation rate. The strong funding position of the Hydro Electric scheme enabled trustees to convert the longevity swap covering around GBP 800 million of liabilities to a buy-in, significantly reducing SSE's exposure to fluctuations in the valuation of scheme obligations. In line with our March forecast, capital and investment expenditure was around GBP 1.4 billion, with over GBP 1 billion of that in core electricity networks and renewable businesses. We invested GBP 700 million in electricity networks in Transmission. This included new substations such as Fort Augustus. And in Distribution, it included reinforcement work like the subsea cable to Drax. We also invested GBP 343 million in Renewables, including GBP 165 million on Seagreen. The thermal energy total of GBP 177 million was focused on Keadby 2 and on multi-fuel projects at Ferrybridge and Slough. SSE has a good track record in creating value through timely disposals of assets, shown again with the sale of the 19-megawatt Slieve Divena onshore wind farm for GBP 51 million or GBP 2,700 a kilowatt. Adjusted net debt and hybrid capital at March 31 was in line with forecast at GBP 10.5 billion. As expected, adjusted net finance costs for the year were GBP 465 million, reflecting higher net debt during the year, higher joint venture interest costs as Beatrice became fully operational, lower capitalized interest and the impact of IFRS 16. We understand the importance of our dividend which provides vital income for pensions and savings. Income is now more important than ever. With '19/'20 representing a year of progress and mindful of the quality and nature of our core businesses, we are recommending payment of the final dividend of 56p on 18th of September, making the full year dividend in line with our target of 80p. I'll now hand you back to Alistair to introduce part 2 of today's presentation.

Thank you, Gregor. Solid financial results, the sale of Energy Services and key developments in our core businesses added up to a year of progress for SSE. It's underpinned our resilience as we deal with the challenges posed by coronavirus and realized opportunities to contribute to a green economic recovery and create value through the transition to net zero. The second part of our presentation will set out how we plan to respond to coronavirus in this financial year and set SSE up for long-term success. Fundamentally, SSE is a resilient business with quality assets in renewables and networks and a key role to play in the transition to net zero. The quality and nature of our businesses and assets and their potential for sustainable value creation transcends the financial impact of coronavirus in this financial year. Even so, the impact of coronavirus on the wider economy is currently expected to have short-term adverse effects on our business that are significant in the context of 1 year, but largely temporary in duration. We have a comprehensive plan to mitigate these effects with 2 clear and related objectives: first, to sustain our ability to pay dividends, which provide vital income for people's pensions and savings, especially in the current financial climate; and second, to promote the long-term success of the company contributing to a green economic recovery and creating value through the transition to net zero. Gregor will now take you through our plan to achieve these objectives.

Thanks, Alistair. While we don't currently expect the economic effects of coronavirus to have a material net financial impact on Transmission, Renewables and Thermal, we do expect an impact in our other businesses in this financial year from the following adverse effects: reduced demand for electricity affecting distribution use of system revenue, commonly known as DUoS; reduced demand from customers for electricity and related services; excess electricity hedges with negative mark-to-market valuations; and higher levels of customers' bad debt. The negative impact of these adverse effects on our results for this financial year is expected to be significant. And based on our current assessment, it could be in the range of GBP 150 million to GBP 250 million before mitigations. DUoS, which we expect will make up at least 80% of the distribution impact, established regulatory arrangements, meaning we should be able to recover uncollected allowed revenues in future years. The actual impact on results this year is, however, uncertain and could be outside this range. So we don't think it would be appropriate to provide specific guidance relating to EPS until much later in the financial year. Our comprehensive plan features 3 main steps to mitigate the impacts of coronavirus: maintaining good liquidity and effective financial management; managing cash outflow; and securing value and cash proceeds from timely disposal of assets. These are designed to support a clear and related objectives, sustaining the company's ability to pay dividends and promoting its long-term success. I'll now look at the first element of our plan, liquidity and financial management, and we are in a good position. This financial year got off to a good start with the successful launch of a dual-tranche Eurobond with sterling equivalent proceeds of around GBP 975 million, and our average debt maturity is now 6.5 years. This reflects where value and financing is best secured. Following the redemption of our EUR 600 million bond today, we'll have cash and committed facilities of over GBP 2 billion. We have a clear plan to secure disposal proceeds of over GBP 2 billion by the autumn of 2021 that I'll say more about later. On that basis, the only refinancing requirement over the next 2 years relates to hybrids, and we plan to issue new hybrid bonds over the summer. We have the options, agility and discipline to ensure SSE remains a well-financed company. The second part of our plan is managing cash outflow. Mainly through prioritizing and deferring capital expenditure, plus reducing and deferring operational expenditure, we expect cash outflow to be at least GBP 250 million less than we had planned back in early March. Around 90% of this relates to CapEx, with the rest relating to OpEx. This won't jeopardize our strategic investment projects which are designed to earn sustainable returns to support earnings, but it does mean less strategic or less advanced projects will be deprioritized and deferred. For example, we'll defer execution of options to extend renewables activities beyond the U.K. and Ireland. I'll say more about our CapEx plans shortly. In addition to this reduction in cash outflow, there will be no new share buyback programs in this financial year. Furthermore, we'll not buy back shares even if the uptake of the scrip dividend for the '19/'20 dividend exceeds 20%. Part 3 of our plan: securing value and proceeds from disposals through sales and partnering. We've been doing this since 2014. But we plan to give renewed impetus, targeting proceeds of over GBP 2 billion by the autumn of 2021. This will sustain dividends, sharpen our focus on core businesses, support our overall financial management and underpin future investment. While asset sales result in some reduction in future earnings, we believe that's significantly outweighed by the financial and strategic benefits of sustaining dividend payments in the short term and promoting the long-term success of the company through enabling future investment to support dividends in the long term. The timing of our disposals will always be subject to market conditions and other stakeholder considerations, but we'll be taking to market good-quality assets in which we expect significant interest. We're very confident in securing over GBP 2 billion by next autumn. We plan to start with disposal of a further series of noncore assets where SSE is not the main operator or which are less aligned with the transition to net zero. Our nonoperating investment in Walney offshore wind farm and some or all of our interest in U.K. multi-fuel facilities meet these criteria and are early priorities for disposal. Indeed, we sold 50% of the Slough Multifuel development in April. We also plan to complete the sale of our interest in gas production assets and in electrical and rail contracting where processes are already underway. We also have potential partnering options in our core businesses. In Renewables, we'll continue our established approach of taking opportunity to realize value and also working with partners to secure investments in projects where it enables the right risk/reward balance to be struck and maximizes our ability to develop and deliver large capital projects that support future earnings and dividends. We obviously have potential to further partner on Dogger Bank, for example. SSE will also consider extending the partnering approach through sales of minority stakes in its core Transmission and Distribution businesses, but only if it's deemed to be in the interest of customers, the electricity system as a whole and shareholders to do so. So we have an extensive range of options for securing value through partnering and sales. And they extend to SGN where we sold 16.7% of our equity stake in 2016, and we retain the option of selling our remaining 33.3% stake. Securing value from a range of options for partnering and sales, managing cash outflow and good financial management and liquidity support our new 5-year capital investment plans out to March 2025. These are focused on core strategic projects that will make the greatest early contribution to achieving net zero; contribute to wider economic recovery; help achieve our 2030 goals on renewable energy and wider electrification of the economy; and earn sustainable returns to support earnings in the years ahead. In this first year of our new 5-year plan, CapEx, net of project finance DevEx refunds, is likely to be around GBP 1 billion. Over the whole of the period to March '25, we expect total net investment by SSE of around GBP 7.5 billion. This includes equity investment, net of project finance DevEx refunds, of around GBP 1.5 billion in Seagreen and Dogger Bank. Of the GBP 7.5 billion, almost 90% will be in our core Renewables, Transmission and Distribution businesses. A key objective of our approach to managing cash outflow and securing proceeds from disposal is targeting a net debt-to-EBITDA ratio at the lower end of 4.5 to 5x range between 2021/'22 and '24/'25. This compares with 5.7x in '19/'20. And the decision to set the target from 2021 reflects the uncertainties around coronavirus impacts in this financial year that I mentioned earlier. This approach is designed to help ensure that SSE maintains credit-rating ratios that are comfortably above those required for an investment-grade credit rating. This provides a sustainable financial framework in which our investment decisions will be calibrated with the progress of and prospects for the planned disposals of noncore assets and businesses and in line with these targets on adjusted net debt and hybrid capital and credit-rating ratios. Final dividend decisions will be in line with our commitment to promote the success of the company for the long term. And we believe that long-term success will be founded on sustaining dividends through short-term advanced adverse economic and business conditions. As Alistair said, SSE's potential for sustainable value creation transcends the impact of coronavirus in this financial year. Based on this and through effective financial management, managing cash outflow and securing proceeds at, at least GBP 2 billion from timely disposals, our target dividend for this financial year remains 80p plus RPI inflation. In line with that, the Board expects to declare this November an interim dividend of 24.4p to be paid in March 2021. Looking further ahead, there are clearly uncertainties about the wider economic situation and, therefore, the impact on SSE's businesses, and the Board will continue to take account of that in making decisions on dividends. But based on our current forecast of the financial impact of coronavirus and the plan we set out today, we are confident we can deliver all of our existing dividend plan. I will now hand you back to Alistair.

Thanks, Gregor. As we've heard, we have a clear plan to achieve the related objectives of sustaining SSE's ability to pay dividends and promoting the long-term success of the company. On the first objective, we're confident in our ability to deliver the dividend target of 80p plus RPI for this financial year and deliver the entire 5-year dividend plan first set out in May 2018. On the second objective, our plans to invest around GBP 7.5 billion in the 5 years to 2025 represent an outstanding opportunity to grow significantly our core businesses in regulated electricity networks and renewable energy, contributing to a green economic recovery and underpinning earnings and dividend for years to come. This leads to the final part of our presentation, how we plan to create value through the transition to net-zero emissions for the benefit of all stakeholders. Climate emergency has not gone away, and there's an urgent need to secure a green economic recovery. We've published a Greenprint with proposals for a cleaner, more resilient economy that's been well received. It shows SSE has the ideas and the appetite to contribute to a green economic recovery and create value through the transition to net zero. And this is underpinned by our strategic focus on regulated electricity networks and renewables and our ambitious goals for 2030 relating to decarbonization and electrification. Amongst other things, these goals illustrate our commitment to having the right credentials for ESG investors. Moreover, the alignment of our strategy and capability with creating value through the transition to net zero is shown by our ambitious goals for 2030 relating to decarbonization and electrification; our growth options using strict capital discipline to select the best investment opportunities; and our core capabilities in successful development, efficient operation, responsible ownership of electricity assets. It's our strategy, goals, growth options and core capabilities, allied to capital discipline, that gives us confidence in our ability to provide returns to shareholders through dividends. I'll now focus on the opportunities in the transition to net zero, starting with offshore wind. Further decarbonization of electricity, heat and transport on the scale envisaged by the U.K. Committee on Climate Change relies on the significant scaling up of renewables. We're well-positioned for this. Successful delivery of Beatrice showed our capability in offshore wind development and operation. Our success in September CfD auctions showed our commercial ability to compete for contracts. Seagreen will overtake Beatrice as Scotland's largest operating offshore wind farm with export capacity of 1,075 megawatts and typical annual output of around 5 terawatt hours. Following the sale of the stake to Total, our gross equity commitment will be around GBP 850 million. GBP 320 million, which reflects 97% of our investment in the Seagreen Phase 1 project to date, has been repaid through a combination of financial close and initial equity sale proceeds. The 15-year CfD contract secured in September covers around 40% of the capacity. An additional 30% of the project will be contracted with SSE, and we're well positioned to optimize the route to market for this power. The project is targeting first export of electricity by December 2021 and full completion by December [indiscernible]. Seagreen is an exciting project, which confirms our skills in offshore wind development and reinforces our position as the leading offshore wind company in the world's leading offshore wind market. Seagreen will be Scotland's biggest offshore wind farm, but Dogger Bank will be the biggest in the world. Through our 50-50 joint venture with Equinor, the 3 Dogger Bank projects are expected to have load factors in the mid-50% range, and each is expected to generate around 5.5 terawatt hours annually. The JV continues to progress towards final investment decisions in Q4 2020 for the first 2 projects and in late Q3 2021 for the third. All 3 projects have secured 15-year CfDs. SSE Renewables will lead on development and construction with first power expected in 2023. The completion of Seagreen and Dogger Bank, offset by the planned sale of Walney, will take SSE's offshore wind capacity to just over 2.8 gigawatts before any other divestments by 2026. Sometimes in the energy sector, you have to play the long game. We first announced proposals for an onshore wind farm in Shetland in 2005. Our painstaking approach to the project has paid off with the decision to invest around GBP 580 million in the 443-megawatt wind farm, subject to the final outcome of Ofgem's consultation. Viking will have an estimated load factor of around 48%. Once built, it will be the largest onshore wind farm in the U.K. in terms of annual electricity output. First output is expected in 2024. One of our key goals for 2030 is major expansion in renewable energy, and Viking, Dogger Bank and Seagreen are at the core of our investment in renewables. Today, our net capacity for renewable energy in operation is just under 4 gigawatts. Starting with first power at Seagreen, expected around the end of 2021, these 3 projects alone will take that to around 6.7 gigawatts by 2026. This is a substantive contribution to a green economic recovery and will yield significant earnings for years to come. The total is before any sell-downs, but it also excludes other opportunities in our renewable energy development pipeline. And I'll hand over to Martin to talk about them.

Thanks, Alistair, and good morning, everyone. Across off and onshore wind, we have a major pipeline of development opportunities. The U.K. government's March announcements that it would allow onshore wind to compete in future CfD auctions starting in 2021 was good news. Excluding Viking, our onshore development pipeline consists of around 1 gigawatt of potential newbuild projects. This includes around 200 megawatts of capacity with consent for development, some of which we're seeking to optimize through planning amendments to accommodate more advanced turbine technology. In January, we decided to build the 38-megawatts Gordonbush extension on a merchant basis, adding 11 turbines to the existing 35-turbine, 70-megawatt wind farm. The project is expected to be operational next year. Looking offshore, we have early-stage options, including Arklow Bank 2 and Gabbard and Seagreen extensions. This is an enviable pipeline of offshore wind developments that currently totals over 4.3 gigawatts. We'll also take part in the upcoming Crown Estate and Crown Estate Scotland leasing rounds. We, therefore, have a very strong position in on and offshore wind, and it's complemented beautifully by our hydro assets. In '19/'20, our hydro generation, including pump storage, earned EBITDA of almost GBP 223 million from providing electricity and additional balancing services to the electricity system. SSE's hydro fleet is unique because it includes 750 megawatts of flexible hydro and 300 megawatts of pump storage, which makes it the U.K.'s largest electricity storage capacity, delivering large-scale power that's both zero carbon and flexible. The flexibility offered by peaking plants like Sloy, Tummel and Glendoe, and the instantaneous response provided by our pump storage units at Foyers are of increasing value as the electricity system adjusts to more generation from intermittent sources. This flexibility also offers the SSE portfolio some protection from short-term wind intermittency, effectively providing a valuable internal market hedge. That's why we're continuing to invest in the hydro fleet to increase the storage and catchment qualities of the assets whilst meeting our environmental obligations. Investments include the GBP 16 million overhaul at the 18.7-megawatt Grudie Bridge station, an example of how we're extending stations' operational life and ability to secure earnings through improved reliability and efficiency; and the current life extension of generators at Foyers to ensure it continues to offer a long-term contribution to grid service requirements with commensurate potential to earn revenue. After Foyers, we'll return to ongoing programs of refurbishing large-scale hydro stations to ensure they're continuing operations for the next 40 years. We'll also continue to explore the business case for a new pump storage station at Coire Glas. This is the only consented bulk seasonal storage solution available in the U.K. against a market need that is evident and increasing. The reality of the net zero transition is that variable renewable output requires reliable, efficient backup generation. Our hydro assets are essential to this, but system and portfolio balancing require additional flexibility services from thermal assets. That's why the GBP 350 million Keadby 2 project is so important. The first-of-a-kind Siemens 9000HL turbine arrived on site last month, a remarkable achievement in the current circumstances. This turbine will make Keadby 2 the cleanest and most efficient CCGT in Europe with an industry-leading 63% gross efficiency. It will provide more start-ups on shorter-notice periods at a superior emissions performance standard than any competing thermal power station in the U.K. It's truly industry leading and is still on target for delivery by 2022. The project is now underpinned by a 15-year capacity contract from October 2023 that's estimated to be worth GBP 17.29 a kilowatt at that stage. And the station is expected to run and earn inframarginal rents on almost every available day. This makes us even more confident that the project will be a strategic and commercial success. Looking ahead, further innovation will be required if the U.K. is to achieve net zero. And that's why we're involved in plans to transform the Humber region into the world's first zero carbon cluster by 2040. At SSE, we mean it when we say our vision is to be a leading energy company in a net zero world. We delivered our target 50% reduction in the carbon intensity of our electricity generation between 2006 and 2018; and in 2018, set a new target to achieve another 50% reduction by 2030 based on 2018 levels. We have now set new carbon targets that have been approved by the science-based target initiative. These include a more stretching 2030 goal for climate action. We're now targeting a deeper reduction of 60% in intensity of electricity generated compared with 2018 levels. This would take carbon intensity down to 120 grams per kilowatt hour. This and our other new science-based targets confirms our strategic commitment to creating value through the transition to net zero. I'll now hand back to Alistair to talk about how we plan to do this in networks.

Thank you, Martin. With a huge investment needed to electrify heat and transport and deliver net zero, the role of distribution companies over the next 10 years is vital. In distribution, we're heavily focused on delivering significant change and modernization of operations, infrastructure and work practices, alongside a major investment program. We want to put in a strong finish to the ED1 price control and be ready to hit the ground running on ED2. To prepare for that, we're working with stakeholders to develop a business plan to deliver change at the pace required by net zero. This means ED2 needs to enable a strategic anticipatory approach to the investment needed to accommodate new services such as electric vehicles while maintaining security of supply. We also want to see a price control that provides strong incentives to encourage more innovation and reflects the changing DSO role. Fundamentally, ED2 represents a real opportunity to accelerate progress towards net zero and, in doing so, contribute to the green economic recovery that's so important for the country as a whole. In Transmission, we have a strong record in enabling decarbonization. In the current T1 price control period, which ends in March 2021, the renewables capacity connected to our transmission network has increased to 6.3 gigawatts. This has helped increase the RAV for this business to GBP 3.5 billion. Looking ahead, we expect the installed renewable capacity connected to our transmission network to increase to at least 10 gigawatts in the T2 price control period to 2026, the equivalent of powering 10 million homes. The case for investment is set out in our stakeholder-led business plan: A Network for Net Zero. Based on analysis of certain needs of users, the plan proposes a minimum total expenditure of close to GBP 2.4 billion over the period to 2026. But if the country is to move at the pace required by net zero, we believe Totex actually needs to be around GBP 3.5 billion. But even on a uncertain case, the transmission RAV should reach over GBP 5 billion by the end of T2 in 2026. But that GBP 2.4 billion does not include any island links. And clearly, the 600-megawatt HVDC Shetland Link will be required by Viking wind farm. Transmission is now awaiting the outcome of Ofgem's consultation on the final needs case and delivery model, which ends tomorrow. Should approval be forthcoming, work on the transmission link, which we expect could be around GBP 600 million, will begin in late summer. And on top of this, there are longer-term strategic opportunities such as the proposed Peterhead to Drax HVDC link, confirming our Transmission business's position at the heart of work to upgrade the country's electricity system for net zero. Taken together, our regulatory electricity networks are strong, stable businesses with a central part to play as decarbonization of power, heat and transport gathers pace. Along with our stake in SGN, the total RAV at 31st March was GBP 9.1 billion. We see a clear path to this reaching around GBP 10 billion by 2023. Beyond that, there is more uncertainty. But based on our business plans, certain view of transmission Totex and the clear requirements for investment in distribution networks to meet the net zero challenge, we estimate the GBP 9.1 billion of RAV we have now could grow to around GBP 12 billion by the end of RIIO T2 in 2026. This morning, we've confirmed our vision of being a leading energy company in a net zero world, a vision we consider to be more relevant than ever as we continue to emerge from the coronavirus pandemic. We've set out how and continuing to work towards it. We're guided by 2 clear and related objectives: sustaining the dividend payments on which pensioners and savers depend for income; and promoting the long-term success of the company for the benefit of all stakeholders. We described the opportunities for realizing value and investing for long-term success. Our core businesses are central to the transition to net zero and are complemented by our thermal energy and customer businesses, which add incremental value. It's in these businesses that we're able to achieve excellence, contribute to a green economic recovery, deliver growth and create value through the transmission -- transition to net zero. Thank you. And I'll now open the call to questions.

[Operator Instructions] And the first question comes from the line of Alex Leng.

It's Alex from UBS. A few questions from me, please. Just first on the dividend. You used to communicate guidance on dividend cover. So I was wondering what dividend cover would you be happy with over the remainder of the dividend plan. And on this point, you are reiterating the dividend plan is a top objective and would seem you are expressing quite a lot of confidence in delivering this. So I was wondering at this point then, in your view, what are the main risks of achieving that? Would it be further COVID-related impact, sort of a 5-year expectations? Or is it subject to the results of this disposal plan? Secondly, on the credit rating. In your new plan, you talked about comfortably maintaining a credit ratio above investment-grade threshold rather than your current BBB+ rating from S&P at least. So could you possibly talk around your thoughts there? And I guess if you're alluding to it, what would be the impact of a one-notch downgrade? And sorry, just finally, one more on your outlook on the coronavirus-related impact. You talked about the GBP 150 million to GBP 250 million before mitigation. Just wondering if you can talk about what the mitigating factors could be, especially, say, where you have already booked for losses related to hedging volumes. And also lastly on this, the footnote on this year's CapEx outlook also says pre-mitigation. So could you expand a little on that?

Okay. Thank you for that, Alex. So I think there's a few there for Gregor because they're fairly financial. But on the mitigating factors, as we said, I think coronavirus took the world by surprise, to some extent, and there's still a lot of work being done on that. We obviously have set out that we wish to conserve cash where we can. We've obviously got plans and targets in place. There'll be some deferment of expenditure, and there'll be some reductions in expenditure and certain things as well. So I think we're giving you an indication of where we see that out turning as best we can at the moment, but the world is relatively uncertain. But you can rest assured that we will be working hard across the business to look at what we do there, and we've just given you the best estimate we can for now. And we certainly would love to be at the bottom end of that range, and we're working hard to do that. But there are many factors to take into account. On dividend, I think we've just been very clear about where we see our position going forward in terms of meeting our plans out to 2023. COVID impacts, second, third, multiple waves, a new version of COVID, something else could all impact on those things. But we believe, based on the cases that we've run, that we have a strong business plan here. It's very clear that people want to start off a green recovery program, and I think we're very well placed to do that. And with our discipline, with the skills that we have, with our ability to do things efficiently effectively, that's why we're expressing the confidence we are today in our dividend plan. You can never be confident about absolutely everything, but we do remain confident based on what we've seen today and based on what we see going forward. But I'm sure Gregor will probably want to cover dividend and credit rating and maybe even the footnote on CapEx. I didn't quite catch it.

Yes. I'll try and cover them, Alistair. I mean, look, dividend, we've been very consistent in this over the last few years. Dividend cover is only one metric that we look at. We look at the long-term prospects of the business. We look at the quality of the assets that SSE has and how we recycle capital. And that's how we look at it, and that's not -- that isn't changing. In terms of your question on the risks of achieving that, Alistair has kind of covered that. We think on a base case, our business model is pretty robust. We've said today that particularly Renewables, Transmission and Thermal don't have much impact in coronavirus. Our Networks business and Distribution, over 80% of that impact will be DUoS, which will recover. And therefore, as far as we can be, we're pretty confident on that dividend out to 2023. On credit rating, we're not saying that we feel we should be moved down in terms of credit rating. What we are saying is that we've put in targets and a disposal program that will get us to a position where our debt-to-EBITDA ratio post 2021 will be at the bottom end of the range of 4.5 to 5x. And if you go back to 2018, our -- that ratio was 4.4x. And for '19/'20, it was 5.7. So we think, actually, what we're doing partly, realigning the kind of focus of the businesses with the disposal program, but also giving us capability of recycling capital and strengthening the balance sheet, we believe that our ratios will trend back towards that BBB+ territory, and we can get there. And then the final question on the mitigating factors. I think you've got to take the CapEx, cash flow savings with OpEx, the 250 -- at least GBP 250 million we quoted, we said 10% of that will be OpEx, whereas the GBP 150 million to GBP 250 million is operating profit. So it's not a like-for-like, but clearly, there's a cash offset coming through.

Next question comes from the line of Dominic Nash from Barclays.

A couple of questions from me, please. Firstly, you recently sold 51% stake in Seagreen, and that included you taking a PPA from the project. Could you give us some color as to what was your expectations of the future power price forecast in coming up with that detail, whether you used sort of like a power curve or something going forward? Secondly, going back to the coronavirus impact, GBP 150 million, GBP 250 million, how much of that has been -- will be booked as exceptionals or ongoing? And interestingly, you didn't mention anything about ROs in that, which is something that Drax brought up, that they saw some weakening in the RO price. Is that something that you're seeing as well?

Okay. So Dominic, on the PPA, we haven't sort of -- we haven't disclosed the full details of that contract. It was a contract that I think Total felt was attractive for them in terms of packaging up their financing and their risk package so that they could buy into the project. It's also a contract that we feel is quite attractive to us in terms of its pricing as well. So I think it works well for both sides, and we certainly feel it improves our returns. On the coronavirus, Gregor, maybe you want to say something. And then Martin, I'll let you jump in on ROs...

Yes. I mean, look, we're not giving guidance for 2021. I think we've done pretty well giving you a range of what we think the impact. Some of that may be exceptional, the bad debt elements and possibly some of the -- if there's onerous contracts, et cetera. But quantifying that, this is not the purpose of today. Today is just to indicate what we feel the impact will be to the business. Whether it's exceptional or through the first column, it's the same thing as cash. And that's the way you should look at it.

Yes. Thanks, Gregor. I mean just on the PPA, I mean the only other thing to add is, clearly, we've got a customer's business, and that customer's business is engaged with companies all the time thinking about longer-term kind of green structures, transactions or PPAs, and that would be another route to market for that. Just on the ROC, the ROC is consistently volatile. It's volatile just against wind output, as you all know. And so I don't think we see any kind of variance that's outside of the normal range of volatility on that. We would -- we're well accustomed to seeing kind of movements in that, depending on how renewable outturns appear.

Yes. So from us, and I didn't hear the specific comments from Drax or Will, but there's nothing that I think we've particularly discussed about that, that's unusual and out of the ordinary for us, Dominic.

Even, say, a 10% decline in customer volumes doesn't mean there's a 10% decline in the need for ROs?

So I mean, clearly, the decline in demand will impact the RO value. But again, I don't think we're seeing anything that's massively outside at our normal range of kind of distribution on the RO right now.

Excellent. And just a follow-up on one point, and then I'll leave you. On the PPA, you also got merchant power as well. Is it fair to assume that the PPA expectation is in line with sort of market expectations for the merchant side as well?

I wouldn't make any assumptions other than we consider that PPA to be attractive and accretive to us doing the deal as a whole, and our customer business that will have the opportunity to start some of that volume would also consider that attractive. But it was something that our counterparty also wanted as part of how they are still putting together their overall financing package.

Next question comes from the line of Rob Pulleyn from Morgan Stanley.

It's Rob Pulleyn from Morgan Stanley. So great to see the dividend commitment and also resolving the question on how you fund future growth. And on that, there were many questions ahead of today's results of how you weigh up growth versus dividend. Clearly, you've opted for both. So could you share some of the internal thought process of how you sought to balance the allocation of capital between these 2 commitments? That's question one. Question two, I think we all appreciate there's a range of combinations on asset sales you could deliver. But could you please give us an indication of earnings dilution from the disposal plan just to help us understand the earnings trajectory going forward?

Okay. Fine. Well, thanks there, Rob. On funding future growth, I think that's important. But equally, the 5-year dividend commitment that we made in May 2018 is also important. And particularly so at this time, when we've seen a lot of savers and pensioners miss out perhaps on income with people cutting dividends. So we felt it was important to honor the pledge that we've given. But also, I think, in this overall package of results today, we've carefully gone through the businesses that we believe are core. We've got those businesses that are less core, where we have less control and where it makes sense to clean up the portfolio and sell them, and that enables us to fund growth going forward. So we believe we're able to do both things. And I think it's important for a business like ours to respond to all of our relevant stakeholders when thinking about the opportunities going forward. And obviously we'll have to keep an eye on just how exciting the opportunities from the green recovery are as we go through that. And then Gregor, on that and EPS?

Yes. And look, I mean, I think one of the attractions that SSE has is that we've got quality assets. We've invested on those assets over time, and we've got quality options going forward the next 5 years, the next decade and decades thereafter. So that is one of the key differentiators. I would say that we can look at growth and dividend together, and we've been very consistent on that. On earnings dilution, it's -- there's a range there because it depends on what assets we actually decide to dispose of. Clearly, we've said we'll do waste energy and Walney and we're doing contracting in E&P. We then have to decide whether we do some more onshore wind or we do something with SGN or we do something in our networks. But broadly speaking, somewhere around mid-single digits, a little bit higher is the kind of range that we would see on EPS impact.

That's super helpful. And if I may just venture a third question. On the COVID impact, may we ask the potential composition of the bad debt, particularly on the customer solutions side? I imagine there's a few components in there, but could you potentially give us a bit of an indication of what the bad debt part is? And what percent of revenue that would be assumed off?

Yes. I mean the exceptional element for bad debts for both business energy and electricity, is GBP 33.7 million. If you look at our overall provisioning for -- because we had some more bad debts coming through in Business Energy. If we look at overall provisioning, broadly speaking, in Business Energy, it's around GBP 60 million, including that exceptional item. And for Electricity, it's about GBP 10 million. So GBP 70 million total. Did you want to say anything? No?

I mean -- yes, I mean obviously I mean, for the number we've shown today on COVID impacts for Business Energy and Electricity reflects kind of not just bad debts. Clearly, it's demand erosion, loss of margin on demand and a lot of losses on hedges that were put into -- on the expectation of realizing that demand. So there's a few things in there. And I think it's fair to say that, I mean, clearly, the prospects of that business over the next 12 or so are pretty aligned to what demand actually ends up being. And there's quite a range of forecasts out there, as you all know, and there's quite a lot of volatility in the demand patterns. So this week, we saw quite an uptick in demand compared to where it's been. Whether that sustains or not, but -- just don't know clearly.

Next question comes from the line of Adrian (sic) [ Ajay ] Patel from Goldman Sachs.

It's Ajay from Goldman Sachs. My main question is you set up a capital program for 2025, and you set the dividend to 2023. And if you start rolling forward for the next 2 years, there's sizable amounts of opportunity. There's the climate state auctions, there's the U.K. auctions next year for renewables as well as the Republic of Ireland. How are you going to go about funding these types of projects if you are successful? Or is it a case of we have to reevaluate the disposal program that you set out here to hit your leverage targets, again, as these new projects develop? And then just secondly, and it's more -- just more understanding question. On the island links, you've highlighted those as a significant amount of opportunity over and beyond your business case. I was just wondering what confidence can you give it your [ windmill ] as an -- aren't these ones open for competition, so it can be a little bit more questionable whether you'll be the guy that ends up with these types of investments in your hands?

So just taking the second one first, Ajay. If Ofgem approves the island link to Shetland tomorrow, we fully expect to build it. There's no current legislation or basis in any regulation for competition within transmission within the U.K., and we haven't seen anything particularly emerge out at the T2 process. So as far as I see currently, and let's not say that something doesn't change going forward, if Shetland's approved, we will get to build it. If the other island links, which are clearly possible -- I know you're talking to the GBP 300 million for Walney and probably similar to Shetland for the Western Isles in terms of money. At the moment, we would build those. And obviously we do them efficiently and at the cost of capital that ultimately gets allowed out of the T2 process. So I don't see that particularly being an issue. On the capital program. The dividend -- we had a promise in May -- back in May '18 that goes out to '23. We've got a clear program out to '25. That all works for us currently. Some of those processes you talked about, as we noted earlier, Seagreen was a project that Jim Smith, our Head of Renewables, started working on 12 years ago. Shetland was a project that we first talked about in 2005. So while we have got additional opportunities in Ireland, with extensions on Seagreen as well to do things in the more near-term, I think the Crown Estate auctions and things like that will be more towards the back end of the decade and therefore, beyond the current 5-year period. We can see some things coming in, but I doubt that new wins today will see completions before the end of 2025. I don't know if Martin wants to comment.

No. I agree with Alistair. I mean the other thing -- I mean, I think you're absolutely correct to talk about the opportunities out there. I mean, it's interesting. I'm sure you caught yesterday in Ireland that there's a view that they're increasing the scale of ambition for offshore wind from the 3.5 gigs in the climate action plans to maybe a pathway up to 5 gigs. And clearly, we have a presence there but nothing further to add.

Yes. I think I'd say to you, look, we've got lots of options, and we've got assets, and we've laid out today, what we're looking at in terms of 1x value. If we need to recycle capital for options that are more attractive and we can take money out to the top of the cycle or some points in valuation cycle, then we'll do it. That, in my view, isn't an issue. That's something that our shareholders are very comfortable with and are keen for us to take forward. If we were sitting here without any options, I think you would have a different question for us, Ajay. Yes?

Yes.

Next question comes from the line of Deepa Venkateswaran from Bernstein.

That's Deepa Venkateswaran from Bernstein. I have 2 questions. So next month, Ofgem is going to come out with the RIIO 2 draft determination. And previously, I think you and the rest of the industry have expressed a view that the 4.3% cost of equity was too low. And I think the number you were aiming for was closer to 6.5%. Given what you've seen in terms of coronavirus, general uncertainty in the economy, the need to invest more from net zero, what is your ask expectation? I mean moving closer to the number or how do you feel about RIIO 2? And second question on the Viking project that you've taken the FID on. Just wanted to check, I mean, this did part of the beta in the CfD auction but wasn't successful. So just wondering what sort of changed that now you're happy to build it on a merchant basis? And does this have anything to do with also the transmission link? And how the cost of that is borne? Maybe if you can just explain the full picture, including your own transmission project, and how that gives you more confidence now versus when you participated in the CfD.

Okay. All right. Well, Gregor will start on T2. I'll do the transmission on Viking, and Martin will cover the rest of the Viking project that is obviously in our control today, and we'll wait to see what Ofgem say tomorrow. Gregor?

Yes. I think we've been very clear on where we think that cost of equity needs to come in at. And we can't have a kind of theoretical calculation that comes out with a number that is where Ofgem were. I think we have to look at it in the round as well. It's not just going to be in July, the cost of equity. It's going to be what the incentive regime is going to be, what our ability to outperform is going to be as well. But because our transmission business is very capital-intensive focused, that cost to equity is really important. And therefore, we would be expecting Ofgem to move that up. And we've been very clear and open with Ofgem on that. And if we want to, as a country, invest for the low-carbon transition and net zero, we need to be looking at anticipated expenditure, and we need to ensure that returns are sufficient to support that. And we would be hoping that Ofgem recognizes that in the initial price proposal.

Yes. And I think it's important that as we look at the green recovery and we look at the potential for what good it can do for this country, we have to bear in mind affordability. But I think the world has changed from where we were 6, 12 months ago. And that was heralded by [ John ], really, coming in on his first day, acknowledging net zero. And I think the imperatives around that have got even higher. If we want innovative investment, we need to be in a place where we demonstrate that industry and government and regulators are working together to give confidence to capital markets that they could put money into these kind of projects. So therefore, it's incumbent on all of us to get to the right answer so we can move that forward. On Viking, I'll let Martin comment on the decision around the wind farm. Obviously if that -- if Ofgem now decide on the back of us confirming that we would like to build it, that they're happy with their consultation that ends tomorrow, then we can go ahead on behalf of the Transmission business and build roughly a GBP 600 million transmission link. And then obviously that leaves Martin and his business to deal with the wind farm, but I'll let him talk to how we got the decision on the wind farm.

Yes. So thanks, Alistair. I mean obviously Viking's large-scale, high-load factor, nearly 1.9 terawatt hours of output expected. And so you get a benefit of the economy of scale. And it's a little bit like the Seagreen answer. We do see a potential market beyond just pure merchant in terms of corporate demand for pure green. And also, there is an option into potentially AR4 in a year or year-or-so's time. So there's lots of kind of drivers of the -- at the validation of the business model behind Viking.

Sorry. What is AR4?

The next auction around offshore. So it's consultation, which is being completed, which is allowing onshore wind potentially into that -- almost certainly into that mechanism.

Yes. So basically Dogger Bank and Seagreen won contracts in AR3. And obviously whatever we're building that wasn't successful in AR3, we don't currently see any impediment to it bidding in AR4.

Next question comes from the line of Martin Young from Investec.

And just 3 -- hopefully, very quick questions. The first gets back to the dividend. Obviously you've elaborated at RPI growth. What would happen if RPI were to turn negative? Would there be a floor on the dividend at ATP? Or is this purely mathematical? The second question is could you just remind us of the option price for the sale or potential sale of the remaining 33% of SGN? And then the final question, SSE generation has raised a mod to have the BSUoS charges deferred to next year, to the next charging year, given the expectation that these are going to rise significantly over the summer months. What sort of magnitude are we talking about, the impact on the SSE business, if that mod is not approved? And where in those coded buckets have you included that?

Just Martin, just to clarify your second question. When you said an option price...

You've talked about an option. Is there a financial arrangement that you have with [indiscernible] ?

What we just -- we own a 33-and-1/3% stake, and we have a right to sell it, but it's not particularly governed by any options or any other financial arrangements. And just for completeness, we sold a 16-and-2/3% stake for roughly GBP 620 million a few years ago. But Gregor, on dividends and...

Yes. I mean look, if we take RPI on a monthly basis and if we get some negative RPI net-net, that balances out. And we haven't seen -- we've had negative inflation in the past. It hasn't been negative for full year. We just have to cover that at a time and look at it and how long that negative inflation would apply. But my guts tell me that I wouldn't want to be reducing the dividend. We've been proponents of the dividend, particularly myself for the last 18 years as Finance Director. And I don't see that being a proposition, particularly if we're going out to 2023, which is the current policy. We still have quality assets. And I think that's the way we'd look at it. But we just have to reassess that and assess it on an ongoing basis. I think there's a lot of noise about negative inflation, but in 3, 4 years' time, we might be talking about higher inflation. Who knows?

Martin?

And just on the BSUoS forecast, say I mean, clearly, the unprecedented situation that the market finds itself in has created the need for grid to take actions and that perhaps we didn't -- wouldn't have expected even a few months ago. And that has fed through to a forecast, which was issued about a month ago, which showed quite an increase in BSUoS, which will clearly have impacts for renewables customers, in particular. Actually, I believe there was a forecast -- an update to that forecast from grid yesterday, which reduced significantly their view of the impact on BSUoS from their expected actions across the summer. So the mod was really designed to consider whether from a customer-interest perspective, that cost should be deferred on the basis it's exceptional and it's very difficult to forecast. But obviously if the grid forecast is coming down, then the exposure to it for the industry becomes much, much reduced.

But overall, whatever happens on BSUoS, it was one of the many things that we looked at when we considered our range of coronavirus impacts that we set out on Slide 21. And as we said at the time, there were an awful lot of things in there.

Next question comes from the line of Mark Freshney from Crdit Suisse.

Can I please ask 2 questions? Firstly, on the GBP 7.5 billion CapEx plan, how much does that include of the 3 major wind projects, Viking, Seagreen and Dogger? And further to that, would it include -- what assumptions would it make on project finance and a farm down for Dogger? Because my understanding is the GBP 7.5 billion only includes equity injections to project finance. And secondly, on the 4.5 to 5x net debt-to-EBITDA, is that only the GBP 10.5 billion on balance sheet debt? Does that exclude 2 major pieces, Beatrice, which is GBP 1 billion; and SGN, which is GBP 1.5 billion? Does that exclude the off-balance sheet debt?

Okay. Right. So Mark, the second one, the EBITDA that we take into account only takes into account our equity element in these projects, not the EBITDA associated with the debt, and we're very clear on that -- it's reasonably consistent with S&P's formula for debt to EBITDA. And then on the GBP 7.5 billion, we've also got the 2 offshore or 3 offshore wind farms -- well, 3, actually, Dogger A, B, and C and Seagreen in there. Our estimate is about GBP 1.5 billion of equity out to 2025. There may be a small residual element that comes into '26 for Dogger C. And then Viking, GBP 580 million in there as well. So there's around just over GBP 2 billion in for those projects. And in terms of the assumptions, there is an assumption that we'll sell down. And if we sell down a bit more, that equity component will be a bit less for Dogger Bank.

So just to be clear, Dogger Bank, within the GBP 7.5 billion, it only includes GBP 1.5 billion of equities. So we would then need to gross that up for project finance and then gross that up again for any farm downs, which would get to your share of the CapEx. Is that fair?

Yes. I mean I think definition of grossing up, you'd take a 50%, take what you assume that we're going to farm down in terms of equity and then work out on the basis of that revised equity component. And I think we've said up to now, we said we'd probably sell down 10% of that 50%. But -- and we're going through a process at the moment -- that might go up a bit if it was attractive for offers coming in, and we'll look at it. So that's the way to look at it.

And gearing, we've said on gearing within the project will probably be well north of [indiscernible].

Yes. I think the Dogger reaches basically over 60%.

Okay. And that's the 10% that you're looking to sell-down of the 50, so 1/5 of your stake. That's only on the first 2 blocks. It's not the third block?

Yes. That's right. I would do the third block once we do that -- we get financial close for that project on the process for it.

And if I could just come back to the net debt to EBITDA. So that includes your share of the EBITDA and your share of the debt within the projects. Is my understanding correct or...

I said it's our share of EBITDA relative to our equity component within those projects. So if something is geared 70% debt, we'll only take 30% as our equity element into the calculation.

And 30% of the debt?

No. No, because the debt is already in our balance sheet because it's our equity, yes?

We just say -- we just take -- if we funded GBP 100 million of equity, whether there's GBP 500 million of debt or GBP 5 billion of debt, doesn't matter. The only thing we take in is the GBP 100 million that we've had to fund as our equity. And therefore, what that's left us on balance sheet debt basically in order to make that investment.

Next question comes from the line of James Brand.

This is James Brand at Deutsche Bank. Just a couple of questions on the disposal plan, please. You've highlighted quite a few assets there, particularly on the network side, all of which are very salable and could easily, I would say, raise more than GBP 2 billion. If you had attractive offers for all of those assets, how would you think about going further than the GBP 2 billion? Is it -- I guess I'm trying to get an idea of how much the GBP 2 billion is driven by a balance sheet consideration and how much it's driven by opportunities for value creation. If you have attractive offers, for GBP 3 billion or even more, would you go further? And then the second question is on the comments around minority stakes in transmission and electricity distribution. Just keen on understanding a little bit more there why you would only be interested in selling a minority stake. I think you mentioned governance but you also might see those assets as being critical to the energy transition. So I'd be keen in understanding that a little bit more.

Okay. And so just very clear. We said today we're looking at the options for SGN and the options for our Networks business. So we're not saying we're going to be putting them necessarily for sale. And over time, that's something that we will just look at. So it's not about offers coming in and saying, well, we'll take the best offer. The -- and clearly, if you look at our Networks and SGN, you're going to get to a bigger number. We know that. In terms of the distribution and transmission minority stakes, it's -- the reason we've got governance there and operational control is we want to run those businesses and operate them without significant interference on dealing with different shareholder positions. So anyone coming in there, if we decided that, that was something that we wanted to do, we'd be purely a financial investor. If you take our Transmission business, for example, as pure infrastructure, it's very attractive for pension funds and infrastructure investors and has a kind of focused revenue stream. And therefore, that's the type of investor we'll be looking to bring in, and that's why we've mentioned the governance and control point.

Yes. And if you look back at what we said previously, we talked about a certain view, that was GBP 2.2 billion. That's gone up a little to GBP 2.4 billion now. But if you look at net zero, and if you think of that in the context of the government's committed to on net zero and what they appear to be looking to commit to on green recovery, the net zero number is GBP 3.5 billion. When you start ratcheting up the amount of investment by that much that we have to fund on balance sheet in transmission, then that's when we've got to look at SGN and the Networks businesses to see how we best fund those in line with what Gregor has just said.

Next question comes from the line of Lakis -- I'm sorry, Athanasiou from Agency Partners.

Three questions from me. First one, relating to some of the questions previously. Your wind farms will be -- there's going to be an increasing component coming from market-related prices. And I think you've said in the past that you believe the electricity price will be set by the gas price for the balance of the decade. And okay, there's huge uncertainty on where the gas price is going. But in the sense that the forces behind that are known unknowns, even if the answer comes out with a wide range. But beyond 2030, can you give us some insight in how you look at where you think electricity prices are going to go, how they'll be governed? Second question is how should we look at your interest in GB business supply? Is it the I&C component that you're interested in? Or are you interested in the SME part of it or what? And third and final question. The COVID impact on enterprise at GBP 30 million to GBP 35 million, I'm slightly surprised how high they were. But is that essentially a revenue thing versus your fixed costs there? Because I think it would be bad debt in something like enterprise.

Okay. Great. Thank you for that, [ Angelos ].

Lakis, Lakis, Lakis.

Lakis. Sorry. Sorry, sorry Lakis, sorry. I'm [indiscernible], yes, indeed. My apologies. Right. So our interest in GB business supply, essentially, I think, having a window on customers that isn't a highly politicized window on customers is worth having, having an outlook for power, when we're going to be generating so much from Green Resources going forward, I think it's something that we want. We don't tend to do the very large customers. They probably tend to be done by nuclear and things like that when you've got very large single loads. But apart from that, we're perfectly happy taking on bigger loads and also then, the more mid-tier customers as well. And we've got billing systems that are capable of billing wide groups and all the rest of it. I think on COVID, one of the issues is we're taking a responsible approach to what we do with staff and not furloughing people. And obviously you've got a lot of sites that have stood down or are being stood down by customers, and you've got an uncertain investment climate. But yes, exactly as you say, we've got all our fixed costs out there. So hopefully, we won't get a particular explosion of bad debt in that area. The people who we deal with generally pay their bills, but we just got a whole bunch of projects moving to the right or moving out in time when we've got a cost base that was put together for something different. And we've got some issues at the moment with how we responsibly deal with that in terms of not throwing employees out into a very, very difficult job market. So I think that's the principal thing there. Martin, comment on electricity prices and maybe business energy as well?

Yes. Lakis, obviously a difficult question, 2030 onwards power prices. I think actually, in the past, you said gas prices and carbon prices would be the first kind of slight addition. And I think it's pretty -- I'm pretty comfortable with being pretty supportive of -- or constructive on carbon prices given that most commodities have clearly taken quite a big downturn during the COVID crisis, but actually [ EUX ] has held up well in terms of value. And clearly, there is good political support, not least in the U.K. for longer-term carbon pricing. So that, I think, probably gives a bit of additional support to prices, slightly longer-dated prices. You'll know there's a range of analyst scenarios on longer-term prices into the 2030s. Some are pretty bullish and some of them less so. I think -- I mean, obviously we look at all of those and we think about all of those into our own modeling as well. And I think the summary is that into the 2030s, we think best merchant renewable projects will get supported by most price outcomes. It's probably the best summary I can give you.

So essentially carbon and capacity market. And intermittent C-type stuff?

Yes. You've got carbon and gas, clearly you got capacity market. You've also got other obviously routes to remuneration, which we talked about in terms of the corporate PPA market and what that yields. And as I say, you've got a range of scenarios out there by various analysts, but we think the best projects get supported.

Right. One final thing. I don't think I heard your answer to Martin's question about what your dividend will be with -- if the RPI goes negative. Would you actually reduce your dividend to keep it flat? Or you just don't know at this stage?

I think Gregor did a little bit of we don't know. He also did a little bit of, I don't think there's any certainty or that much likelihood of perhaps a whole year of negative prices. But then finally, we do caveat that with the fact that we will be pretty committed to dividends and a progressive dividend policy. And therefore, [indiscernible] the cutting our dividend seems an odd one, basically to us just thinking about it now.

Next question comes from the line of Bartek Kubicki from Societe Generale.

This is Bartek Kubicki, SocGen. A couple of questions. Technical ones more. Firstly, on comparison of the Seagreen and Dogger Bank in terms of CapEx. You have provided Seagreen CapEx, GBP 3 billion minus your GBP 0.5 billion of the transmission line. How does this look like in terms of Dogger Bank, especially in terms of CapEx per megawatt of installed capacity? And consequently, also, might -- I would suspect that IRR on Seagreen would be quite lower than Dogger Bank. If you can elaborate on IRRs of those 2 projects? Secondly, on -- actually positive COVID-19 implications, if there is any. I would think about something like higher ancillary services revenues from your CCGT plants, higher trading profit as other generators have been reporting, potential totex outperformance. If you could elaborate on this one or, for instance, a recurring OpEx cut, if there's anything like this related to COVID-19, especially on your CCGT plant, that would be very interesting to hear. There was a couple of articles lately about balancing costs in the U.K. increasing significantly with gas power plants benefiting on this. And thirdly, on your E&P. You haven't actually mentioned anything about the progress. I would like to hear where are you in terms of the disposal? And whether the recent reduction in the book value of the E&P reflects your expectations concerning the price of the assets and what actually, in this case, the book value of the asset is?

Okay. Great. Thank you. So look, yes, Seagreen CapEx is just -- it's just below GBP 3 billion, so more like about GBP 2.9 million. CapEx in Dogger will be more in the GBP 8 billion to GBP 9 billion region, probably closer to GBP 9 billion. And I think CapEx per megawatt probably, ultimately, we would expect to be slightly lower on Dogger. You're going to pay more for the transmission link because it's HVDC, but you've got less steel in the water because the water's shallower. So definitely, post -- just given the scale of the turbines, definitely post taking out the OFTO, the CapEx per megawatt will be somewhat lower on Dogger than it is on Seagreen. And then on IRRs. We have said in the past that because of the scale of the asset, that shallow water and the CapEx issues, we would have expected the IRR on Dogger to be higher. And in addition to that, because we've got 100% CfD, we probably feel there'll be a bigger range of buyers for our stake in that. So that will probably also improve our IRR as we go through. So I think the rest of the other guys are going to answer, but they're welcome to comment on those 2 as well.

So yes, thanks. So just on the balancing mechanism question. Again, a kind of simple narrative on this would be our assets tend to perform pretty well in this regard anyway where we are -- we've got a good history of offering good ancillary services and flexibility to grid off all of our CCGTs and indeed our flexible hydro and pump storage units. And so we have seen, as you say, an uptick in balancing costs. And most of that's being driven by a nuclear contract and the potential usage of embedded generation options that quite are looking to call. So there's actually nothing particularly unusual going on in CCGTs. It might be slightly ahead of where you would expect, but not maybe materially so at this point. But clearly, the flexibility we offer is pretty valuable to grid.

Yes. On an E&P, the process is continuing. Clearly, when we look at the impairment, we've got to take into account what the market position is and any kind of discussion we've had there, but also it reflects where gas prices and oil prices have gone over the last 3 or 4 months. So it's a combination of that. But with that process, it's still continuing. And we are hopeful that we'll be able to progress something over the summer, but we'll see.

In any event, we're still committed to the style at some point. Okay.

Next question comes from the line of Jenny Ping from Citi.

Three questions, please, from me. Firstly, a theoretical one and just trying to understand the logic of sort of capture recycling versus an equity raise. Effectively with capture recycling, clearly, you've got the growth opportunities there, but you're ultimately staying static as a company versus actually issuing equity and growing. So I'd be keen to understand if that's something that's been discussed and the merits of each. And I guess it's something to do with the asset prices as we stand today as well. Secondly, just on working capital. There's been some -- quite a bit of talks with Ofgem and government about retailers potentially passing through some of the -- or delaying the payment of network charges and also ROC's policy charges to network operators as well as generators in -- as a way to help the suppliers. Is that something that you're already seeing or talked about? What do you anticipate to be the size of the working capital impact there? And then very lastly, just on the U.K. carbon market. We've heard from the government on some of their initial thoughts around this. What is your latest expectations on the introduction of the carbon market? How do you think it will impact power prices as well as the carbon price floor, please?

Okay. Thanks for that, Jenny. Look, my simple logic or simple take on the equity raise is no. We haven't thought about it. And the disposals program is about cleaning up the portfolio and getting a more focused business. This business isn't around size for size's sake. What it is, is around delivering value and long-term value for all our different stakeholders. And so we think it's the right time to look at continuing the recycling program that we've had ongoing for a while now to clean up the group to make it more focused. And that will also provide us, we believe, with the funding that we will need in order to make the investments that we've laid out today and that we expect to come going forward. So that will be...

I think on the growth point, we're -- if people look at the slide in terms of what we're doing on both offshore and onshore, and we're more than doubling our existing capacity and more than doubling the output we're going to be pushing through our Renewables business. I think that isn't lacking aspirations in growth. The second thing is, in this environment, as Alistair said, we have to look at the businesses we're in, and we need to evaluate where value is. And if you take the waste energy, some of the multiples that waste energy have been sold at have been very interesting. So it's a combination of that. And thirdly, we know our shareholders pretty well. We know what they are keen on us doing. And at the moment, they want us to focus on moving the business forward. And I don't think an equity raise would be one of the things they would thank us for. So that's not something that we're looking to do.

Okay. And then on working capital and retailers. I think we saw action early by the water industry, and we've seen things across Europe as well by various governments and regulators wanting to stabilize industries and businesses. As part of that, our -- Ofgem approached the industry, the Networks businesses looking to get a support scheme in place there for those retailers who need it. We were pleased to participate in that and to contribute to what the regulator wanted. And I think they've made around about GBP 350 million available currently from across the network operators in electricity and gas, and we're playing a part in that. I think most of that will reverse by the end of the year. Essentially in terms of the support, I think it's offered for invoices over the next few or several months, and then that comes back. So there may be a small impact on working capital of a few tens of millions across the business during that period of time, but we don't see it being particularly material at the moment based on what we're seeing. And as I say, I think we're keen just to play our part in what goes on overall. The ROCs item is an entirely different one. Obviously there, we continue to encourage the regulator to look at collecting ROCs over -- on a monthly or quarterly basis so that people probably have -- don't build up such large liabilities and then potentially give themselves such big cliff edges on their financing going forward. And that's something that we'll continue to look at. We'd like to have seen that sorted out this year, but probably this is a difficult year to get that one sorted out. But anyway, we're not doing anything to support nonpayment of ROCs at the moment, and that's definitely a matter for Ofgem. And then maybe Martin wants to comment on carbon?

Yes. Just on carbon. I mean clearly, we welcome the fact the U.K. government is committed to robust carbon pricing. Of course, duly comes out of the EU ETS on the 1st of January '21. And we obviously think carbon, its price is very important to have an achievement of net zero. The goal and intention is, we believe, is to establish a U.K. ETS, which broadly or may broadly link to the EU ETS. And obviously again, we'd see that as a positive if that was the actual outcome, not least because of the strong support for good carbon pricing in the EU itself. And if not, then clearly, there's talk of a design, which has 2 protections in, 1 to ensure price stability, a reserve price of around GBP 15 per tonne and then a cost containment mechanism to protect extreme high prices. And we think that's pretty sensible because clearly, markets have to be pretty credible. And again, we think that's the right policy as an alternative if EU ETS linkage can't be achieved. Clearly, this is all kind of out for consultation, but I believe the backstop is a carbon emissions tax, which, again, I think, points to government confidence that carbon pricing is the correct way forward for the industry. So I mean, in broad terms, the fact that this is being considered in this way, we think is probably a very strong positive thing.

I'm sorry, on the carbon floor price?

So the carbon price support is set to -- is set GBP 18 up to the 31st of March 2022. And then there's been nothing said about it beyond then, but we have no reason to think that policy instrument is necessarily being reconsidered.

I think it's obviously been a very strong plank on which the U.K. has built a leadership position in renewables and particularly offshore. So I would expect them to -- and them being government and civil service -- to look to maintain that. And I think all the discussions we've had about a green recovery and driving a green recovery and looking at how we get to net zero I think would indicate that we need a smooth path through to that. And at the moment, I don't see anything that indicates otherwise. But obviously we'd all like greater long-term certainty, which I think is something I referred to much earlier on in an answer to another question.

And the last question comes from the line of Fraser McLaren from Bank of America.

I'm last so I'll answer -- I'll ask rather a few questions, if that's okay. So first of all, can I just check that your remarks on disposals, both the GBP 2 billion and the dilution just relates to the new assets that you've mentioned today, i.e. Walney, the contracting business and multi-fuel? Then as far as the other disposal options are concerned, I see that legacy CCGT fleet's not on your list. Just wondering why that's the case. And surely, it would further enhance your low carbon credentials. On Seagreen, I see the output starts earlier than the CfD? What are the arrangements for offtake in the meantime? On hybrids...

Sorry, just say that one again? Sorry.

Yes. On Seagreen, I note that your expected output starts earlier than the CfD. Just wondering what the arrangements for offtake are in that interim period. On hybrids, you mentioned you plan to issue over the summer. Just wondering if you would think about raising more than just replacing the one that you can call? And then lastly, what's the extent of your involvement in the Humber carbon capture project? When do you think is the next timing stage there?

I'm trying to keep right -- okay, there are 5. So look, on disposals, I don't think contracting multifuel and Walney will -- yes. But do you want to -- yes. I don't think they'll quite get it. So Gregor?

Yes. I got it. So I mean basically, this -- you wouldn't get to GBP 2 billion, if you took them in, as Alistair said. So the balancing factor, there's a bit I'm seeing is, is kind of mid-single-digit to slightly higher. It depends on what we put in there, whether it's an onshore wind farm that we sell or a stake in that or it's SGN or whether it's something else. So it does assume that if we do over GBP 2 billion, that's the impact, yes?

So besides the 3 you mentioned, it's -- we believe and in our estimates of the EPS dilution, something else has to go in there as well to get north of the GBP 2 billion traded. But then that -- so you get your money, and that's what drives that dilution, and that's why Gregor is [indiscernible]...

Good. You've got to remember, it's offsetting that we're putting this straight to debt. So you'll have an interest saving coming through netting that, yes?

Right. Legacy CCGTs. I think there's a few in here for Martin. Or would you want to do the hybrid first, Gregor?

Yes. Hybrid, no, there's no intention to raise significantly more than 1.2. Clearly, if markets are attractive, we may do a bit more than the 1.2. But it's not going to be significantly more than that.

Okay. Right. And I think there were 3 others. I might have a quick pop at Humber unless Martin gets it and nails it all. But anyway, legacy CCGT...

So look, we see this as -- we see the legacy CCGTs as a valuable part of our overall portfolio. I mean, clearly, they offer flexibility, which helps us hedge out renewable intermittency, particularly within day, renewable intermittency when forecasts change. And clearly, they're making decent contributions through balancing mechanism around ancillary services offerings as we discussed earlier. So we see them as a pretty critical part of our portfolio.

And KB is obviously another site that's [indiscernible] been built on it currently?

Yes. Absolutely. So KB2 is obviously under construction. And yes, it's -- you get a bit of a shared service benefit in terms of OpEx, et cetera, from that going down the line.

And in terms of Humber, KB3 could be there with a fully capture ready or fully hydrogen ready?

Yes. Potentially. So -- I mean for the Humber cluster, I mean, clearly, we think that a zero carbon thermal offering -- probably initially CCUS, maybe longer term hydrogen -- is going to be pretty important for the U.K. to achieve its goals. It is logical for the U.K. to concentrate at the moment on the Humber as probably the best kind of starting point for that. And we are signed up to the Humber cluster effective alliance there with a number of other parties to see how we can help precede that as part of a joint industrial offer.

And I think people have looked down at Medway as well in terms of possibility to build something else there or...

Yes. And indeed, in Scotland -- and Fraser, you'll know of our kind of legacy here with Peterhead. Obviously we've been here before and done some work, which we think is -- we think makes us a useful contributor to these discussions.

And then I think Seagreen early output is the last one, I think, of the multifaceted question.

Yes. So Seagreen has arrangements for that flat volume to flow through on a merchant basis into the market.

Okay. I think that was the last question as called out by Sandra. So thank you all for your questions and for joining Gregor, Martin and myself on the call. For those of you -- you'll be able to contact Sally, Wendy and Rory, all in the Investor Relations team if you need anything further. We'll -- we're potentially on the road for a little bit later on this week and certainly quite a lot of the next week. And for...

Virtual road.

Virtual road. Yes, yes, yes. Indeed. Well, yes, we might do the odd bit of it. It might not all be from home. And so for those of you wondering, so I came to the office for the first time in over 3 months yesterday, which was quite an unusual one. But anyway, I'd like -- thank you all very much for joining us. Look forward to continuing the dialogue. Hopefully, you found this morning helpful in clarifying our positive view of the future and going forward. And also, I'd like to say a big thank you to Sandra, our operator, who's done a great job for us this morning. And I'll now hand the call back to her.

Thank you, sir. That does conclude our conference for today. Thank you for participating. You may all disconnect.