SSE plc (SSE) Earnings Call Transcript & Summary

Ladies and gentlemen, thank you all for standing by, and welcome to today's SSE Half Year Results 2020/'21. [Operator Instructions] I must advise you all that this conference is being recorded today, Wednesday, the 18th of November 2020. And without any further delay, I would like to hand the conference over to your speaker for today, Mr. Alistair Phillips-Davies. Sir, please go ahead.

Good morning, everyone. Once again, we're bringing our results to you remotely due to coronavirus. Despite that difficult backdrop, Gregor, Martin and I are pleased to be able to report strong delivery and good strategic progress during the first half of the financial year. There will be time for questions later, but in the meantime, we will cover, firstly, a summary of recent progress in delivering our clear and focused strategy; secondly, our financial and operational performance; and finally, the significant opportunities we see ahead of us to create sustainable value for both shareholders and society through the transition to net zero. Throughout the coronavirus crisis, we've been guided by our core purpose, which is to provide energy needed today while building a better world of energy for tomorrow. Doing so requires us to ensure the safety and wellbeing of our employees, and total recordable injuries in the first 6 months of the year fell to 27 compared with 35 in the same period last year. In these unique times, delivering energy needed today would not have been possible without the commitment and flexibility of our employees, particularly those in operational roles, and I'd like to pay tribute to them. Thanks to their hard work, operational performance has been strong, and we're continuing to establish ourselves as a preeminent green energy company in the U.K. and Ireland. We've made significant progress on the GBP 7.5 billion investment plan, especially in renewables. Construction work has started, and key contracts have been awarded at Seagreen and Viking. And we expect to reach financial close on the first 2 phases of the world's largest offshore wind farm at Dogger Bank over the coming days. These projects alone are creating more than 1,000 jobs. Having announced a plan in June to generate over GBP 2 billion from disposals, we've already delivered GBP 1.4 billion in combined proceeds from Walney, MapleCo and Multifuel Energy, with gains on sales expected to total over GBP 900 million, helping to recycle capital into our core green businesses. We've also undertaken prudent activity in financial markets to lead the group well-financed. And we've announced an interim dividend of 24.4p per share and reiterated our commitment to delivering our 2023 dividend plan. More broadly, we've led the industry in making the case for an ambitious green economic recovery from the pandemic. And this week, building on our science-based carbon targets announced in June, we've joined the UN Global Compact's Race to Zero, committing for the first time to achieving net-zero emissions across all scopes by 2050 at the latest. We are asked to be a principal partner for COP26, and we're committed to supporting the U.K. Presidency attempt during the next 12 months to reach a more ambitious global climate agreement in Glasgow next year. And today, we become one of the first companies to publish a Just Transition Strategy, available on our website, outlining the social implications of net zero and our role in supporting fairness for employees, customers and communities. This all adds to the significant progress we've made in recent years to reshape and refocus the group on our core electricity businesses. Our networks and renewables businesses form the foundational core of SSE. They're central to the transition to net zero and where we will be investing 90% of our ambitious CapEx program. Importantly, these businesses share attributes that leverage our core competencies. They are low-carbon, asset-rich businesses requiring world-class skills in developing, building, procuring, operating and owning large-scale, complex electricity infrastructure. They play to our strengths in asset management, large-capital projects, managing policy and regulation risk and efficient financing. Like many of our European peers, we see a strong logic to holding renewables and networks in the same group, and we have a long-term strategy of capital recycling for growth across these core green businesses. And our ongoing disposals program will mean we will only retain those businesses where they're highly complementary to that core and where they contribute to the transition to net zero. For example, Thermal provides firm, flexible capacity to balance the variability of renewables. The business also has a key role to play in delivering net zero with opportunity to develop both carbon capture and storage and hydrogen, which will help pave the way for decarbonization of heat, transport and industry. Our energy customer businesses provide a valuable route to market for our generation in both GB and Ireland. In Ireland, vertical integration can mitigate risk; while in GB, we believe our energy customers will become increasingly important as a route to market as the demand for green corporate PPAs increases. Enterprise gives us a platform for growth in the growing distributed energy market where our trading and asset management capabilities will be important. And through EPM, we can deliver commercial synergies and manage risk across all our market-based businesses. In our Renewables business, there are a wealth of opportunities. We have projects already in development that will double our renewables output by 2025. We have an enviable pipeline of longer-term prospects, all of which we believe will be required to meet binding government targets and that could treble our renewables output by 2030. SSE is leading the development of more offshore wind than any other developer with further auctions still to come. Furthermore, we continue to see potential to export our end-to-end expertise across the renewables value chain to new geographies in order to extend our portfolio further. Delivering on these opportunities will support sustainable, long-term growth and create shareholder value, underpinning our ongoing commitment to remunerating shareholders with dividends. Doing so will require us to maintain our strong operational and financial performance. And I'll now hand over to Gregor, who will take us through our results during the first 6 months.

Thanks, Alistair. I would echo your thanks to our colleagues who have helped us to maintain the safe and reliable supply of electricity during the pandemic. I'm pleased to say that financial performance in Renewables, Transmission and Thermal has not been adversely impacted by coronavirus. However, as forecast in June, we have seen adverse impacts elsewhere in the group, with an impact on operating profit for the first 6 months of around GBP 115 million. This is just slightly lower than the guidance we provided in September, and none of it has been treated as exceptional. Despite recent increases in the infection rate, our view on the likely full year impact is unchanged. And based on our latest assessment, we expect EBITDA to be towards the middle of the GBP 150 million to GBP 250 million range. In summary, compared with many other listed companies, we have been relatively resilient in the face of coronavirus, and we continue to take steps to minimize the impact. Coronavirus notwithstanding, we've delivered a very solid set of results for the first 6 months. Excluding the businesses currently held for sale, we have delivered adjusted operating profit of GBP 418.3 million, adjusted profit before tax of GBP 193.9 million and adjusted earnings per share of 11.9p, within the expected range set out in September. Reported metrics also include the GBP 260.8 million exceptional gains on sale recognized during the period on disposal of Walney and MapleCo, with a further exceptional gain in excess of GBP 650 million to be recognized on Multifuel Energy in the second half of the year. Given seasonal impacts on our businesses, our focus is always on results for the full year. However, for the first 6 months, in our core businesses, we have seen, in Transmission, adjusted operating profit increased by 5%, mainly due to phasing of allowed revenue, partially offset by increased depreciation charges relating to ongoing capital expenditure and operating costs. In Distribution, lower demand and reduction in new connections activity due to coronavirus were the main contributors to a 27% reduction in adjusted operating profit, although around GBP 25 million of this is expected to be recoverable in future years. Renewables saw a reduction of 6% with adverse weather conditions being almost entirely offset by higher achieved power prices. The result was also adversely impacted by lower Renewable Obligation Certificate prices and nonrecurring GB Capacity Market income in the prior period. However, higher GB balancing activity and a non-exceptional gain on sale of a 51% stake in Seagreen minimized the net impact. Finally, our investment in SGN delivered a lower operating profit this year, reflecting, amongst other things, the impact of coronavirus, which led to higher unproductive costs. Elsewhere, Thermal demonstrated its value in completing -- complementing our renewables fleet with strong performance in the balancing market in the first 6 months and exceptionally high availability across the period. Despite the prior period, including GBP 51 million of nonrecurring GB Capacity Market income, adjusted operating profit only fell by 14%, reflecting the strong operating performance, combined with the gain on sale of a 50% stake in Slough Multifuel. Business Energy had already been facing challenging market conditions, and coronavirus further reduced customers' demand for electricity and related services. That drop in demand led to a GBP 24 million loss from early settlement of excess commodity hedges with negative mark-to-market valuations. Electricity performed relatively well, with adjusted operating profit aligned with the prior period despite the impact of coronavirus, although the full year contribution from the business will be heavily influenced by the winter months ahead. The Contracting business, which we're in the process of selling, has also felt acutely the impacts of coronavirus, and this has weighed heavily on the results for SSE Enterprise. Finally, there was a significant reduction in the operating loss for EPM, reflecting SSE's new approach to hedging. It is still expected to make small operating profit in future years. Adjusted metrics continue to be important in giving a view of the underlying operational performance of the group. However, given that the disposals program constitutes a key part of our strategy for creating long-term value, it is important to call out its impact in terms of real gains and real cash proceeds. As Alistair said, we've already delivered more than GBP 1.4 billion and are now targeting well in excess of GBP 2 billion in disposals. We sold our 25% nonoperating stake in Walney to Greencoat UK Wind for GBP 350 million. We've now completed the sale of our 33% stake in the meter asset provider, MapleCo, to Equitix for GBP 95 million. And last month, we announced the sale of a 50% share of Multifuel Energy to First Sentier Investors for GBP 995 million. The gain on this disposal will form part of our reported results at the year-end. These transactions amount to more than GBP 900 million in gains on disposals, showing the value SSE can create. For clarity, we set out on this slide the clearly significant impact of exceptional items on reported profit. In addition to the GBP 260.8 million exceptional gains recognized in the first 6 months from our disposals program, further noncash exceptional gains totaling GBP 66.2 million have been recognized, including fair value uplifts on sale of stakes in Seagreen and Slough Multifuel and the release of excess coronavirus provisions following continued recovery of customer debt. For operating derivatives, there was a favorable GBP 343.9 million IFRS 9 remeasurement recognized in the period, mainly from an unwinding of previously out-of-the-money commodity trades. Capital and investment expenditure before project financing refunds during the first 6 months was GBP 680.5 million, with around GBP 570 million or 85% of that in our core electricity networks and renewables businesses. This capital investment includes developing with Equinor the world's largest offshore wind farm at Dogger Bank, where we hope to reach financial close on the first 2 phases in the coming days; developing with Total what will be Scotland's largest offshore wind farm at Seagreen; commencing construction of Viking, which will be one of the most productive onshore wind farms in Europe; and getting work underway on the transmission link to Shetland following final approval by Ofgem earlier this year. At the full year, we expect capital and investment expenditure, net of project financing refunds, to be around GBP 1 billion. This lower run rate is expected to reverse in '21/'22 and '22/'23, when spend is expected to be around GBP 1.8 billion in each year. Of the GBP 7.5 billion, net of project finance DevEx refunds, we will invest to 2025 almost 90%, which will be in our core businesses. Within this, equity investment will total around GBP 1.5 billion in the period to March '25 in Seagreen and Dogger Bank alone. These projects will contribute significantly to the U.K.'s net-zero ambitions as well as a green economic recovery. SSE has a strong balance sheet and the financial discipline needed to fund our spending plans and take opportunities when they present themselves. At 30 September, our adjusted net debt and hybrid capital stood at GBP 10.6 billion. This follows successful refinancing during the first 6 months of this year, through which we raised hybrid capital securities and conventional Eurobonds totaling over GBP 2 billion. This means we have no significant refinancing or funding requirements for the next 2 years. We have good liquidity with GBP 1.5 billion of undrawn committed facilities, and we will continue to be agile with investments, sale of noncore assets and acquisitions. Adjusted net debt is expected to be around GBP 9.5 billion at March 2021. We can increase our ability to capitalize on the significant development opportunities related to net zero through financial partnering, particularly in renewables. SSE is well-placed to manage development risk. We're selling down stakes to retain typically 30% to 40% of a project and working with equity partners for construction, and our operation brings a number of benefits. It allows us to secure developer premiums and realize value at the earliest opportunity. It reduces our overall risk and financial exposure on large-scale projects. It avoids a large increase in net debt, there's no earning, and it appeals to the different risk appetites of different partners at different stages of the project cycle. This approach optimizes value creation from our CapEx and gives us further optionality as we seek to make the most of our enviable development pipeline. And to that end, we hope to announce the further farm down of a stake in Dogger Bank by the end of the calendar year. In June, we said we would also consider, in time, extending a partnership approach potentially through sales of minority stakes in our core Transmission and Distribution businesses. Our position remains that we are open in the medium term to bringing in minority equity partners in networks should we consider to release capital to facilitate the realization of greater growth opportunities across the core businesses. In June, we also set out a financial framework, which incorporated the requirements for funding of our investment plans. To ensure the message is clear, I would like to reiterate the key points to date. With our disposals program to secure well in excess of GBP 2 billion, we believe our plan to invest GBP 7.5 billion over the 5 years to March '25 is fully financeable without any requirement to change capital structure. This would also be consistent with our target to improve our net debt-to-EBITDA ratio to be at the lower end of a 4.5 to 5x range between '21/'22 and '24/'25. Our S&P credit rating remains at BBB+ stable outlook, and our Moody's rating remains at Baa1, albeit on negative outlook. These compare favorably to peer companies. And while a downgrade would be disappointing, we believe it will be entirely manageable on current plans. In summary, we are comfortable with the balance sheet and the target net debt-to-EBITDA ratio for today and how they are forecast to evolve with our disposal investment plans to 2025. This will allow us to capitalize on the opportunities to invest in further value-creating projects on the journey to net zero and to increase EBITDA for the long term. Over and above the disposals we've already outlined, sales processes are continuing for our Contracting and Rail businesses with the sale expected to be completed by the end of the financial year; and our E&P business, where completing a sale has proved challenging, not least due to the prevailing economic circumstances. We are updating this at the appropriate time, but we remain committed to disposing of the business as it is neither core nor aligned to our focus on delivery of net zero. We have work to do. In June, we signaled we were exploring divestment of our interest in SGN. While no final decision has been made, we've appointed banks to review options for the sale of all or part of our holding. Ultimately, our approach to disposals enables capital recycling and concentrates our efforts on growing our core businesses. While disposals of noncore assets will clearly have a short-term impact on earnings, which we estimate to average around 7p over the next 5 years, delivering our ambitious CapEx program is ultimately what will underpin sustainable EPS growth. For our main renewables projects alone, we forecast this will add around 10p by '26/'27. And this is EPS growth driven by high-quality, long-term assets that form part of our renewables and networks core. SSE's first financial objective has always been to remunerate shareholders through dividends. Overall, financial performance in the year-to-date remains in line with the Board's expectations. And on that basis, we are declaring an interim dividend for 2021 of 24.4p. Looking further ahead, we expect to recommend a full year dividend of 80p plus RPI inflation and continue to target RPI increases in the following 2 years, as set out in our 2023 dividend plan. This would take the total dividends paid to shareholders to over GBP 14 per share since 1998 and underlines SSE's ongoing commitment to remunerating shareholders for their investment. Although uncertainties remain over the impact of coronavirus on the wider economy in the second half of the year, if this remains in line with SSE's current forecast and weather conditions are normal for the remainder of the year, then adjusted earnings per share for the full year is expected to be in the range of 75p to 85p, including a gain on disposal for Dogger Bank. Reported EPS will reflect gains in disposals for Multifuel Energy, Walney and MapleCo, and is expected to be well in excess of 150p, excluding any movement in remeasurements under IFRS 9. So in summary, notwithstanding the impact of coronavirus, we've had a good 6 months with solid operational performance and good strategic process. Looking ahead, we're in a strong position to create lasting value for shareholders and to remunerate them with dividends going forward. Our ESG credentials are strengthening, we have growth options that are second to none, a strong balance sheet and what we believe is a fully financeable plan to build the infrastructure that is so badly needed to deliver net zero. I'll now hand you back to Alistair to look in detail at our future opportunities.

Thank you, Gregor. With just 6 weeks left in the Brexit transition period, clearly, there is a degree of uncertainty. We've carried out comprehensive planning for a range of Brexit scenarios. And while we continue to monitor developments closely, we are confident that the resilience shown by our business model through the pandemic will enable us to maintain the operational standards expected by all our shareholders. Any Brexit or coronavirus headwinds are, however, far outweighed by the opportunities presented to SSE by the transition to net zero. Whether you believe the committee on climate change projections or those in National Grid's future energy scenarios, a number of things are almost universally accepted. First, that significantly more renewables will be required with the trebling of U.K. capacity expected by 2050. We're currently in the process of developing more offshore wind than anyone else in the U.K. and see significant opportunities to build out our pipeline and grow our portfolio to the end of the decade and beyond. Second, that the electrification of heat, transport and other sectors could double electricity demand by 2050, and with production of green hydrogen on top of this, it could triple. This will require significant long-term investments in both Transmission, as we look to connect up the surge in renewables, and in Distribution, where we need to modernize our networks to accommodate up to 5 million EVs and a significant increase in heat pumps. Third, the new technologies like carbon capture and storage, hydrogen and floating offshore wind, all of which align to our core capabilities, will have increasingly important roles to play. The opportunities for SSE with our clear strategic focus on electricity and net zero, our sustainable business model and our presence across the value chain are immense. Across the Irish Sea, the story is similar, albeit on a smaller scale, and with other countries pursuing a similar path, there are strong and clear opportunities for SSE to play a role internationally. I'll now hand over to Martin, who recently stepped up into a broader role as Energy and Commercial Director with a specific mandate to drive growth across the group. Growth in mind, he'll provide more detail on how our market-based businesses are capitalizing and the opportunities associated with net zero.

Thank you, Alistair. We are undoubtedly a first-class operator of renewable assets, which provides a strong platform for the group. Our hydro portfolio boasts uniquely long-term assets. We have 78 hydro stations that outperform, yet are often underrated, despite yielding close to 4 terawatt hours of production over the last 12 months and providing vital flexible backup to our portfolio and the market. Our pumped storage interest at Foyers and our flexible hydro stations, including Sloy, Glendoe and [ Areti ], have provided significant support to the system via balancing an ancillary services already this year. The importance of flexibility will only increase in the renewables-led energy system. And at Foyers, we can produce electricity in less than 30 seconds. And in wind, we operate 224 offshore wind turbines and 1,191 onshore wind turbines. In short, we have hugely talented people operating first-class assets. And we are building more of these assets. We have an enviable pipeline of wind projects, and this slide shows both our current ownership stake and an indicative future ownership percentage following any potential sell-downs. This highlights the potential future value creation from these projects. And we have used the assumed SSE ownership stakes in the right-hand column as the basis for the following slides on our planned future output and capacity growth. With our huge successes in last year's allocation round 3 auction, our flagship renewable projects are all progressing well. Right now, there is no other company in the world leading the construction of as much offshore wind capacity. Seagreen will be the largest offshore wind farm in Scotland and the deepest in the world. At 1,075 megawatts and with turbines with a rotor diameter 30 meters above the London Eye, it will have load factors of 54% and is expected to produce around 5 terawatt hours a year. With our partners at Total, we will be investing GBP 3 billion, making it the largest, privately funded project in Scotland. It currently has a 454-megawatt CfD, and we are progressing the build with a target commissioning date of December 2022. Meanwhile, at Dogger Bank, we are constructing the biggest offshore project the world has ever seen, with the longest offshore wind grid connection and the biggest turbines ever installed offshore. At 3.6 gigawatts, it will have a load factor of 57% and produce around... [Technical Difficulty]

Sorry about that. Go on, Martin.

I'll start that paragraph again. Meanwhile, at Dogger Bank, we are constructing the biggest offshore project the world has ever seen, with the longest offshore wind grid connection and the biggest turbines ever installed offshore. At 3.6 gigawatts, it will have a load factor of 57% and produce around 18 terawatt hours per annum. Its GE turbines will have a 220-meter rotor covering a swept area of 38,000 square meters. That's nearly 3x bigger than the London Eye. They will be installed by a vessel taller than the Eiffel Tower. And onshore, Viking, at 443 megawatts with a load factor of 48%, will be among the highest-yielding onshore wind farms in Europe, producing almost 2 terawatt hours of energy each year. At peak construction, there will be 400 people on site, and we reach the final investment decision on the basis of building it merchant. These projects alone are creating more than 1,000 skilled green jobs at a time when they are sorely needed. The great potential in renewables was considerable even before the Prime Minister's recent commitment to increasing ambition for offshore wind to 40 gigawatts by 2030. Critically, SSE boasts strong development options even beyond the projects we have discussed, giving SSE Renewables a continuous development pipeline over the decade ahead and beyond. Seagreen 1A, at 360 megawatts, could be built in the middle of the decade. And it is perfectly possible for Arklow Bank. At 520 megawatts, to be built in Ireland at a similar time. We expect both to have opportunities to secure contracts in the next financial year. Our view of the potential capacity across the Seagreen projects has increased by around 1 gigawatt since June, with Berwick Bank and Marr Bank, formerly Seagreen 2 and 3, now at 4.15 gigawatts. Along with North Falls, adjacent to SSE's Greater Gabbard JV, these are options for future CfD auction rounds, and it is feasible that all of these can be built by 2030 to support delivery of the Prime Minister's ambitious plan. Further afield, SSE is exploring sites beyond Arklow in Ireland, and we're an active participant in both the ScotWind and the next Crown Estate leasing round. This is an enviable offshore pipeline, and it is complemented by a 700-megawatt onshore pipeline and 1.5 gigawatts of newly consented pumped storage capacity at Coire Glas. We are also generating options overseas by establishing relationships with potential partners and building local knowledge in different jurisdictions. Clearly, there are a number of potential pathways for our renewables fleet, depending on our successes in CfD and Crown Estate auctions and, as Alistair has indicated, the pace with which we can expand internationally. This slide illustrates how our portfolio could develop based solely on our existing pipeline. We set ourselves a target of contributing renewable output of 30 terawatt hours a year by 2030. And with a strong pipeline and further upcoming opportunities to build on it, we have a clear line of sight to achieving that goal, targeting a trebling of our renewables output by the end of this decade, which we would expect to quadruple our wind output. Delivering our current pipeline, we'd see us add, on average, over 500 megawatts of renewable capacity each year to 2030. And with upcoming seabed auctions and the work we are doing to identify opportunities to expand our portfolio internationally, we have clear aspirations to reach a run rate of at least 1 gigawatt of new assets a year during the second half of this decade. Lower carbon thermal will be vital to the transition to a net zero world, providing firm, flexible capacity that balances the variability of renewables and underpins decarbonization of industry heat and transports. Our development of a new CCGT at Keadby 2 is progressing well. Backed by a 15-year capacity market contract at the highest price since 2017, it will be the most efficient CCGT station in Europe. However, this will be the last unabated thermal station we build. The longer-term future of thermal is in carbon capture and storage and hydrogen. We have credible opportunities to be at the vanguard of CCS and, over a slightly longer time scale, hydrogen at Keadby, Peterhead and Medway. Keadby 3, in particular, is progressing through the planning process and is part of the Zero Carbon Humber consortium that secured early government funding and is well placed for future funding rounds. Through our strong sites and involvement with partners in low-carbon clusters, we are well placed to seize further opportunities and future opportunities in this space over the decade ahead. I'll now hand back to Alistair, who will cover our regulated networks businesses.

Thank you, Martin. Much of the renewables potential described by Martin ties in -- lies in the north of Scotland and transmission, which now has an internationally accredited science-based carbon reduction target and holds the key to unlocking it. Following regulatory approval for the GBP 630 million Shetland HVDC link in July, construction began in the summer, and the project remains on track for completion in spring 2024. This link will tap into Shetland's renewables potential, including the Viking wind farm, and help ensure security of supply on the island. The support future earnings and regulated asset value is not previously covered in growth forecast, but this investment is not forming part of our RIIO-T2 baseline investment case. Turning to T2 itself, we were extremely disappointed when we saw Ofgem's draft determination this summer. We have had constructive discussions and, while we remain concerned, are hopeful that Ofgem will consider the additional evidence and stakeholder support provided, including the provisional findings of the CMA appeal by a number of participants in the water sector when it publishes its final determination in December. A sensible settlement will enable us to attract investments and create jobs rather than delay progress on net zero with a drawn-out CMA process. Delay in investment is not a lower-cost option for consumers in the long run, and we continue to engage constructively with Ofgem with a view to securing the right settlement for all stakeholders. Our network for net zero business plan set out a well-justified GBP 2.4 billion of investment during Q2. And since submitting it, our expectation for the amount of investment required has only increased. We now see a clear path to a near trebling of connected generation capacity from 8 gigawatts today to 22 gigawatts by 2030. This is because a significant proportion of the growth anticipated in offshore wind is expected in Scottish waters, particularly on the East Coast, as demonstrated by the launch of the ScotWind leasing round in the summer. In collaboration with National Grid Electricity Transmission and Scottish Power Energy Networks, we've submitted to Ofgem an initial needs case for the East Coast HVDC link that will connect the north of Scotland to demand centers in the south with our subsea cable. The latest network options assessment from the National Grid ESO recommends construction of this so-called bootstrap proceeds in 2029, with focus now turning to the likely requirement for a second HVDC link shortly afterwards. So in summary, when considering the known transmission investments in the coming years and the vast opportunities the transition to net zero presents, we expect, on all reasonable outcomes, the Transmission RAV will reach over GBP 5 billion by the end of RIIO-T2 price control in 2026, with potential for significant future growth in the years beyond. And while transmission networks will enable the expected renewables boom, at local level, it will be for DNOs and eventually DSOs to deliver the decarbonization of our streets and homes. The direction of travel and electrification is clear to see, and we have commissioned research that indicates a significant spike in EV ownership in our distribution operating areas from around 44,000 vehicles today to 5 million by 2050. We also expect a significant increase in heat pump installation over the same period. With this in mind, we need the right level of investment in the upcoming RIIO-ED2 price control to provide the platform needed to make communities net zero ready. Our ED2 business plan will, like our approach to RIIO-T2, be stakeholder-led, and we'll engage with all parties for outcomes that create lasting value and meet societal expectations on net zero. Under the new leadership of Chris Burchell, who's succeeding Colin Nicol, who's retiring, the business will be focused on performing well through the closeout of ED1, while seeking an ED2 framework that strikes a balance between efficiency and securing the innovation investment needed for decarbonization of the system, network reliability and improvements in customer service. So we'll take questions in a moment. But before we do, I'll recap what we set out today. During the first 6 months, we've delivered strong operational performance and demonstrated the resilience and underlying qualities of our business with coronavirus impacts, EPS and dividends tracking in line with Board expectations. We've also made encouraging strategic progress on our CapEx program, our disposals program and on further refocusing the group around our foundational core of renewables and networks. We are at the forefront of efforts to Build Back Greener and are working hard to get a settlement for T2 that delivers both for net zero and for customers. We have a clear pipeline of projects that could treble our renewables output and quadruple our wind output by 2030 and the financial discipline to support it. We're building more offshore wind than any other company in the world right now. And with upcoming U.K. auctions and opportunities in other geographies, we have clear aspirations to reach a run rate of at least 1 gigawatt of new assets a year during the second half of this decade. We have optionality, first-class capability and we are committed to creating shareholder value through the significant investment in the net-zero transition. By aligning our business objectives to the UN Sustainability Development Goals, committing to the Race to Zero pledge, promoting principles of fair tax and playing our part in a Just Transition, we'll reinforce our position as a leading ESG start and trusted partner to government. Ultimately, we are delivering our clear company purpose in securing the long-term sustainability of our business activities while creating simultaneously value for both shareholders and society. Thank you. And we'll now open for questions.

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

Alex Leng from UBS. A few questions from me, please. First, on the remainder of the disposal plan, you're approximately 70% through, and you spoke today about delivering well in excess of the GBP 2 billion. Is that balance just reflecting debt reduction and the Contracting and Rail business flagged today? Or is that also factoring SGN or other options? Can I just confirm that? And on this, is it possible to get an update on your thinking for SGN? What you found since starting to explore the sale option in the summer? It seems like the need may not be so much immediately balance sheet-driven anymore. Does that mean a sale is less likely? Or are you potentially seeing opportunities to secure value, provide more headroom to capitalize in some of the renewable opportunities you highlighted today? And the second, on the longer-term renewables pipeline and upcoming seabed lease auctions, you mentioned clear international opportunities. Do you have any more detail here on what you may be targeting? And on the seabed leases, I think, historically, the time line from lease through consenting, financial framework and construction, your actual operation can be a 10-year process. The time lines you've shown in the presentation are quite tight. Do you see this process potentially becoming faster going forward? Or is your 2030 aspiration likely to require some of this international growth in the middle?

Okay, plenty of questions there. Look, I think Gregor will talk you through the detail of the SGN process, but it's very clear we would need to get SGN in order to get well in excess of the GBP 2 billion. The other 2 disposals are far smaller. They're important to us to clean up the business, but much, much smaller. Gregor, maybe you want to go on SGN, and Martin and I will cover the renewables piece.

Yes. Thanks, Alistair. Yes, Alex, we announced that we have appointed banks. We'll look at the options. Clearly, before we do anything, we need to wait for the final proposals to come out in December, assess that and then look at how we move forward to the process. And we will consider that in the first quarter of the calendar year -- next calendar year. I would expect to get over the GBP 2 billion. We certainly need to sell our stake in SGN, and we'll take that forward and advise the market probably in that first quarter.

Okay. Great. On Renewables, I'll -- just internationally, which I know we mentioned a couple of times, I'll just deal with that and then hand to Martin for the rest of it on seabed leases and time frames and things like that because his team are working hard on delivering that plan out to 2030. But internationally, we've historically looked in a number of places. And currently, our focus has been on opportunities in offshore and Northwest Europe. Outside of the U.K. and Ireland, obviously, we're clear about what we're doing there. We're looking at Japan. And also, we're looking at the important market -- onshore market in North America as well. So I think we see several clear opportunities for us to be able to expand. Martin, maybe just more highlight what you've got and what you're doing?

Yes. So just obviously, on the international stuff, I mean I think there's certainly 9 gigawatts of wind built last year globally. So obviously, we've got a place to play in that. On the nearer-term stuff, I mean, clearly, you have the seabed auctions expected to be taking place next year for Crown Estate and indeed for ScotWind. And obviously, we are looking at those processes. But of course, we also have Arklow in Ireland, so 520-megawatt offshore wind possibility. And there's clearly stated ambition by the Irish State to have offshore wind generating by the middle of this decade, and we think that remains the lead project. And clearly, longer-term pipeline will be placed as those auction processes mature. But clearly, government policy is very much pointing to a requirement to very large offshore wind buildout over the next 10 years. And clearly, we believe we have a pipeline that can play into that and then help deliver government objectives.

Next question comes from the line of Mark Freshney.

Can I please ask about the next CfD allocation round? I mean you alluded to opportunities overseas. But the next CfD allocation round looks like there won't actually be that much offshore wind that can bid into it, and I think there's only one project that you have. How does the onshore and solar potential within your portfolio, how does that look going into the CfD round? So I guess, what do you think of the CfD round? And your offshore -- onshore wind, should I say, how likely is it that you can bid that in?

Okay. I'll just mention policy, and then Martin will come in on some of the other more specific thoughts we've got. I think we've obviously seen a number of announcements from this government and particularly the Prime Minister, and we obviously saw a very positive and ambitious set of announcements this morning on the 10-point plan. I think we shouldn't imagine that the next CfD round is going to be identical to the last one. I think with the increase in ambition, there are clearly opportunities to change the rules a little bit and tweak the rules, particularly given the ambition. And as I think the... [Technical Difficulty] Somebody is making a lot of noise on the line, sorry, I think was either typing or whatever. Or maybe you need to mute, Mark, if you're typing furiously. So I think we'll see potentially changes to how these things are run to make sure that we can deliver the 40-gigawatt target, and that will obviously provide a number of companies with opportunities in order to get to that target. But Martin, maybe you want to talk more about what possibilities we have.

Yes. So I mean, obviously, as Alistair has mentioned, Mark, the CfD's rules are still being consulted on, so we don't fully know that. I mean, clearly, we've mapped out a pipeline of onshore wind development that we think can be brought forward over the next few years. So we're probably slightly mindful of that. And of course, we also have the possibility for [ CB money ], in particular, to go into that next CfD round as well. So I mean I think kind of looking at the overall pipeline that we have, I think we feel pretty replete with options, and we're pretty optimistic about placing those under what we expect to be a number of government rounds from here to achieve their ambitious target.

But I think there's no doubt that the government are going to have to be a little more flexible in the next couple of rounds, and they're going to have to accelerate them if they're going to get all the -- if they're going to get kind of volumes bidding in that they obviously saw in the last round when we were obviously very successful. And there were some other people who are -- who I would expect to redevelop those sites for the next rounds. There's definitely going to be a need to try and shorten time lines, which I think was what Alex mentioned as well, if we're going to deliver all that because time lines to date have been slightly longer than you'd probably indicate from that. But I presume if the ambition is there, we can get that done, and we certainly stand ready to do it.

Can we proceed on the next question, sir?

I believe so -- well, there's a little bit on solar and onshore. So I think we've got numbers in there for, actually, for fairly significant onshore build in the U.K. And then solar is something that we're starting and -- starting looking at through distributed energy business. So that's going to be smaller at the moment, unless we decide to take advantage of opportunities overseas.

Our next question comes from the line of Jenny Ping from Citibank.

A couple of questions, please. Firstly, can you tell us what the book value for Dogger Bank is as we stand at first half? And then secondly, you talk about Japan in terms of the interest there. Is it fair to say that you could be bidding into the 2021 auction? Is it really as soon as that? Third, very quick question. GBP 9.5 billion net debt, I'm assuming that includes all of the disposal announced plus Dogger by year-end? And the last question is around Multifuel. I understand that you have signed an offtake power contract with the buyer of Multifuel, First Sentier. Can you tell us a little bit about that contract, what the duration is and if you can confirm that is done at market prices, please?

Okay, fine. Just on Japan, it's a market of interest for us. I don't think there's anything specific we want to say at this time, but we'll obviously update you on any international moves we make as and when we make them. But just people in the past have expressed an interest in where -- of where we're looking, so that's one of the areas. Book value and net debt, Gregor? They all sound quite accounting it to me?

Yes. Thanks, Alistair. Net debt, it does include all the disposals, as we would expect, including Dogger. The bid value, we're not disclosing that at the moment. We're in the process. We've said we hope to have that process concluded by the end of the calendar year. So you just, unfortunately, Jenny, just have to wait until that comes out, and then we'll give you all the details on the project. Bear in mind, this is a joint venture with Equinor, and we're limited in what we can say on some of those numbers.

Okay. And then finally, so you asked on Multifuel. I must admit, I'm not aware of any unusual or odd contracts, but Martin...

So it's okay. Historically, we've provided market access to the Multifuel business back to the power market. I mean, clearly, Multifuel's -- majority of the Multifuel's remuneration is through the waste that they obviously recycle, but we do provide -- we have provided market services for the power market...

So therefore, there's no significant contract with any particular in and out of the money issues around it. It's just accessing the market for a small fee basically to make sure they can trade their power.

The next question comes from the line of Martin Young from Investec.

Just a couple of questions, please. The first is on networks. Yesterday, the CMA announced that final determinations in the water appeals process has been pushed back to mid-February. Given everything that Ofgem has been saying about looking to take the findings of the CMA into account, I just wondered what your thoughts are as to whether that has somewhat muddied the waters. And the second part of the question on networks is in relation to the offshore wind network opportunity. If we do move to some kind of meshed network structure offshore, would you be expecting to participate in that and under what regulatory framework? And then my second question was sort of picking up on what you were saying about the retail presence that you still retain, giving you a hedge for some of your generation output. Given the expansion in renewables that you've outlined, do you have a sufficient route to market through your business retail endeavors to provide some elements of protection going forward?

Okay. Great. Yes. Yes, we obviously know what the CMA have been saying. If they made that announcement in mid-February, it still allows us an Ofgem time, I would expect, to take full account within the detailed license drafting, which I don't expect to complete until early March. And therefore, we can make a decision about any appeal that we make. And obviously, Ofgem can make any adjustments that they need to make to their detailed license. It does perhaps muddy the waters, as you rightly put it, in respect of how they will treat what they say in early to mid-December on a final determination. But one would be hopeful that we can navigate our way through to the -- to a final agreement that sees the CMA's important decisions to date fully reflected in the returns that we would hope to get over the next 5 years. I think on the mesh networks and going forward in regulation, I think we're at a very early stage there. We've got to be careful from a purely practical point of view in building offshore grids not to pick winners in terms of particularly advantaging particular bits of seabed or wind farms. I think there is a need to have a more coordinated approach, so we avoid 20 or 30 different applications to land cables and get to sort of transformer stations 30 kilometers in land, particularly on places like the Norfolk Coast, where there's been a lot of issues there, I think, in particular constituencies and amongst MPs. So I think there is a role for the transmission companies to play in trying to provide a level-playing field for access for all the various wind farm development that will go on offshore. The exact regulatory framework for that, I think we're unsure, but there's a clear regulatory framework at the moment for each of those transmission companies. And I think something along those lines, a simple route-based model that provides key points of access that give certainty to renewable generators would seem a sensible approach. But I think we're at early stages of discussing those things, but they will be important in terms of trying to reach that 2030 target. There's obviously a lot more offshore wind needs to be connected up on the East Coast of the U.K., and it needs to be done in some sort of sensible or organized fashion. And on retail presence?

Yes. Thanks, Alistair. I mean, clearly, short-term power market liquidity has held up. But longer-term market liquidity has not been in a very good state for a bit of time now. And therefore, the customer's business offers an important route to market for, not just renewables exposure, actually, but all of our assets exposure, also not just in the U.K., but also in Ireland. So in Ireland, I mean it is a very purely vertically integrated market. So clearly, the customer presence there is very important to the hedging of those assets. But also in the U.K., I mean to answer directly your question about whether there's enough volume, I mean business energy account for roughly somewhere between 9% and 10% of the entire market for power. And placing kind of renewable exposures won't, into that sector, won't erode all of that volume. So there is plenty of volume for business energy to go at. And the final point is that not only does the customer's business provide liquidity, it obviously also provides [ shopfront ] capability for some of our greening opportunities, and we have seen increased customer demand for that over the last 6 to 12 months.

Next question comes from the line of Tom Musk (sic) [ John Musk ] from RBC.

It's John. Two questions from me. Firstly, on COVID and just how that is playing through the numbers. Obviously, the guidance is perhaps a little better than you gave us previously. Can you give some color on where that is? I noticed, in particular, you reversed some bad debt charges in Ireland. So is that something similar in the U.K. as well? Are we seeing bad debt perhaps a little better than you originally anticipated? And then secondly, not sure if this is repeating Jenny's question, but the earnings guidance for the full year of 75p to 85p, you say, includes the gains on Seagreen and Dogger. I think Seagreen is around about 2p within that. What -- should it be a similar number for Dogger that we could think of within that 75p to 85p?

Okay. Great. I'll let Gregor run through that. Let's say Dogger does slightly better overall than Seagreen.

Yes. I mean I think, clearly, we've given you some guidance for the first time, and everyone's trying to work out where all the numbers sit. There's a lot of moving parts, John. COVID and how people have allocated COVID in some of the businesses, we haven't gone through segment analysis with any of the analysts. So there are kind of things that over time, that will be clear. And we're just going to have to wait until Dogger Bank disposal happens, and you'll get a lot more clarity then. We just felt that the range of earnings from analysts was between 66p and 92p. That's quite a wide range. And therefore, we felt it was sensible at this point to give you at least a central guidance. That doesn't say we can't be above that or below it, and it's just to give you a bit of guidance. In terms of COVID impacts, I mean, broadly speaking, of that GBP 115 million, about GBP 50 million of that is coming through the Customer business and mainly Business Energy. I mean bad debts have been a bit better than we expected. So that's good. But a fair bit of that is the hedge that we -- on power that we had to sell out because demand was down. There's about GBP 35 million coming through the networks businesses, and a lot of that is demand and just on productive time. And the balance is coming through the enterprise business, which the contracting business has impacted in the first half of the year. I think moving forward, we've obviously gone into the second phase. We'll see how that kind of moves forward. We are seeing demand coming down, but it's still tracking, broadly speaking, on our projections. And I think the risk will be that bad debts maybe could be more challenging in the following year, which we'll have to go just monitor. But Martin, do you want say a quick thing on debt?

Yes. I mean, just as you said, Gregor, it's perhaps been slightly better than maybe we had anticipated 6 months ago, and demand has clearly been pretty volatile. I mean at the start of this COVID crisis, we saw obviously demand collapsed 20%, 25%. And clearly, it's not anything like that now. And actually through September and part of October, demand nearly got back to normal. So we're keeping a close eye on that. But obviously, those patterns have been pretty volatile. And in terms of macroeconomic outlook for customers, I mean, clearly, we're keeping a very watchful eye on that as well and trying to also make sure that we are doing the right things in terms of servicing customers' requirements during this period.