SSE plc (SSE) Earnings Call Transcript & Summary

Good morning, and welcome to our interim results presentation. Before we begin, let me first address today's announcement that I intend to retire from SSE during 2025 after 11 years leading the company. It's been an immense privilege to be SSE's Chief Executive, and I am extremely proud of what we have achieved during my time here. However, I believe the time is right for the Board to begin the search for a successor and I'm fully committed to delivering a smooth handover, maintains momentum on our significant growth plans. Our Chair, Sir John Manzoni will lead the appointment process, taking account of our highly capable internal team and the wider market, and we will update you in due course. In the meantime, I, along with the rest of the Executive team remain fully focused on delivering our strategy. I'm joined this morning by Barry O'Regan, our Chief Financial Officer; and Martin Pibworth, our Chief Commercial Officer. And as you will hear shortly, there is plenty to be getting on with as we make the most of the significant opportunities in front of us. We'd be delighted to take your questions after we present what has been a strong start to the year as we continue to drive high-quality sustainable earnings across the group. I'll start with our #1 priority, safety. I'm pleased to say we've seen a significant reduction in both the number of injuries and the total recordable injury rate compared with the same period last year. In April 2024, we opened an industry-leading immersive safety center where actors bring the reality of a safety instant to life for our employees and contractors. We've already put over 6,000 employees and partners through this program and hope this investment will continue to have a real-world impact in ensuring everyone working for SSE gets home safely. You've heard me speak before about the mission-critical role SSE has in the clean energy transition in our core markets, markets that are increasingly attractive. Decarbonization and electrification are 2 defining structural trends, and while climate targets have slipped in some parts of the world and the implications of a new U.S. administration is yet to be seen, the deployment of clean power in our home markets is accelerating. We are uniquely placed to benefit with one of the best clean energy portfolios in the world, spanning renewables, flexibility and electricity networks. These are the key enablers of net zero and energy security more broadly. Our balanced business mix provides multiple short growth options in offshore and onshore wind, hydro, carbon capture, batteries, transmission and distribution. This mix also provides deep resilience, enabling us to generate value through a variety of market conditions as we've seen in recent years, and these tailwinds are strengthening. In the U.K., our biggest market, the government has put delivery of clean power in an accelerated time scale at the heart of its growth agenda. Already in the first few months of the parliament, we've seen the new government taking bold steps at a noticeably faster pace as it seeks to put its 2030 clean power mission interaction. Whether it's spending, speeding up the outdated planning system for electricity infrastructure in Scotland or long overdue support for long-duration storage projects like Coire Glas, the policy landscape is already more supportive than it was at our full year results in May. And the NESO is now handed over to government its detailed priorities for successful pathway to clean power by 2030. They point to the pace of strategic investment that will be required for economic growth. Whichever way you look at it, SSE is ideally placed to deliver a significant proportion of any 2030 Clean Power Plan. But it isn't just a U.K. story, as other countries intensify their focus on clean energy, there'll be opportunities in other geographies across the EU and Japan, where we have a growing presence. So whether at home or abroad, SSE is a business with the right strategy, in the right markets, at the right time with a once-in-a-generation opportunity before us. We are now at the midpoint of our 5-year fully funded investment plan that will see us target around GBP 20 billion in CapEx investment to drive long-term earnings growth. The Net Acceleration Program Plus or NZAP Plus is supported by world-class assets and pipelines, balance sheet strength, capital discipline and highly capable teams. This is essentially a clean power plan. And, as you'll hear throughout this presentation, we're making significant progress on delivering it. It gives us a clear pathway to deliver strong and increasingly high-quality growth, which includes increasing adjusted EPS to between 175p to 200p by 2027. So in summary, this is a company at the heart of the clean energy transition that is delivering investment in world-class assets, creating sustainable value for shareholders and society, a carefully balanced business mix that provides deep resilience and multiple growth options and a highly disciplined approach to investment with never increasing organic pipeline of projects that offer long-term value creation. Whether your eyes on today, this decade or beyond, SSE is well placed, well balanced and fit for the future. I'll now hand you over to Barry.

Thank you, Alistair, and good morning, everyone. I'll now take you through what was a strong start to the financial year before touching on our continued confidence in the long-term financial outlook. In the first half, the group delivered adjusted operating profit of GBP 860 million, 24% higher than the prior year. I'll step through the business-by-business movements shortly, but first, I want to highlight the changes in earnings mix coming through the results today. As you may have noticed in May, the higher contribution from our Networks businesses this year has not only increased the predictability of results but also reduced the level of seasonality in group profitability. And this upweighted contribution, combined with an improvement in renewables performance that reflects weather conditions and year-on-year capacity increases, meant that these businesses delivered twice the total operating profit they did in the prior period. Meanwhile, the same weather conditions contributed to more stable markets, which saw the Thermal business make a small loss in the first half. This is a strong group performance that shows the benefits of our business mix and the value from our investments starting to come true. Turning to that investment. Our continued focus on networks and renewables meant around 90% of the GBP 1.3 billion invested in the period was in these businesses and our delivery of high-quality earnings. Overall, the group delivered adjusted EPS of 49.8p, in line with our expectations for the period. Turning to SSEN Transmission performance. Adjusted operating profit decreased by 27% to GBP 157 million. Despite growing investments and therefore, underlying revenue allowances, the year-on-year reduction includes a one-off timing effect after the business benefited from full expensing accelerated capital allowances in the prior period. In addition to this economically neutral timing effect, the cost of transmissions workforce continues to grow in preparation for the major investment program Alistair will cover later, and depreciation has increased as the asset base expands. SSEN Distribution's operating profit was up 188% year-on-year to GBP 346 million. As we have flagged before and in line with our guidance for the business for the full financial year, this is because allowed revenues include a multiyear cost inflation catch-up. This follows a sustained period of high inflation rates, which were not reflected in tariffs, which are set 15 months before the start of the financial year. In renewables, we were delighted to announce that Viking reached full commercial operations in August. When combined with a full contribution from Seagreen Wind Farm on our Salisbury battery facility, the business finished the period with over 1 gigawatt of additional installed capacity when compared to the same 6 months last year. And after adverse weather in the previous summer, the period saw a return to favorable conditions with output increasing across wind and hydro. Combined with the increase in hedge prices, these factors meant that SSE Renewables operating profit increased by 287% year-on-year to GBP 336 million. As we highlighted in May, we fully expected that Thermal & Gas Storage operating profits will be significantly lower than the prior year, reflecting market prices and assumed normal volatility. The favorable weather conditions shown on the previous slide for renewables also contributed to the more stable market conditions over the summer, meaning that flexible thermal generation was not required to the same extent as in previous years. Turning to Gas Storage. The business continues to make a seasonal loss, which is expected to revert back to profitability for the full financial year. With already contracted increases in capacity market payments not due to start for another 18 months, the market environment outlined above drove a combined operating loss for these businesses of GBP 44 million for the half year. In our customers' business, we are continuing to see supply margins return to more sustainable levels. In electricity, with competitive and responsible pricing in place, we have been implementing tariff decreases whilst continuing to support vulnerable customers. And while business energy was affected by lower volumes, the decrease in customer tariffs across the businesses also contributed to lower levels of bad debt provisions required. With customers' needs and expectations evolving rapidly, combined with an increasing market requirement for low carbon power supply solutions, the importance of this business as a route to market for renewable generation will only increase. And turning very briefly to our other businesses. I would highlight that we have commenced a reorganization of SSE Enterprise, which you'll see existing activities integrated into other business units for a simpler group organizational structure that provides an enhanced platform for growth. Below the line, net finance charges rose reflecting the interest on Seagreen project financing, while the fall in tax rate was driven by the full expensing capital allowance relief available on our investment program. As we have guided to previously, we expect to benefit from full expensing to increase in line with our CapEx delivery and our current tax rate to continue to fall to an average of 12% over our 5-year plan. Dividends continue to be an important part of delivering value to our investors. And in line with the plan set out 18 months ago, we today declared an interim dividend of 21.2p, reflecting an increase of 6% on the prior year. And we will make the recommendation for the final dividend in May alongside publication of full year results. Our commitments to delivering on the FY '27 dividend plan remains, as we target dividend growth of between 5% to 10% per annum whilst also restricting earnings dilution from the scrip option. The strength and stability of SSE's capital structure has been a significant part of the group's delivery in recent years, as it has navigated volatile commodity prices, increased collateral requirements and higher interest rates. Looking forward, it is this same strength and stability that will enable the group to increase investment in high-quality, long-term infrastructure required for the energy transition. And that increased investment has meant that adjusted net debt rose to GBP 9.8 billion at September '24, with 94% held at fixed rates. The successful issuance by SSEN Transmission of EUR 850 million 8-year green bond in August '24 at an attractive fixed rate has solidified SSE status as the largest corporate issuer of green bonds in the U.K. And we have replaced our existing credit facilities with enhanced sustainability-linked facilities that will run to the end of the decade and provide a good liquidity base. There is a lot of detail on this slide, but ultimately, not much has changed since May. We have seen the stronger performance from Networks and Renewables come through the results presentation today in line with our expectations of better performance. And whilst the weather conditions meant flexible thermal generation was not required to the same extent during the first half of the year, we still expect the business to benefit over the key winter months and deliver around GBP 200 million of profits. Looking out over the medium term to FY '27, the progress made to date on our investment plan means we continue to have confidence in the long-term earnings projections for our businesses. As ever, final performance for FY '25 will be dependent upon market conditions, plant availability and the weather over the second half of the financial year. And therefore, consistent with the approach we have taken in the past, we will look to give specific EPS guidance later in the financial year. Finally, I wanted to return to the value creation we see out to FY '27. We are now halfway through the 5-year investment plan and with around 80% of CapEx either delivered or committed, we are seeing the benefits of that capacity additions and regulatory asset growth that are a core part of that plan. And with ever increasing investment each year, we're expecting to deliver around GBP 20 billion of CapEx by 2027 as we progress through the plan. Whilst phasing of spend may mean we don't hit this number exactly, that does not affect our confidence in achieving our earnings targets. Crucially, we have already locked in and are delivering on the key projects that will deliver our FY '27 earnings guidance. And we have done so through the selective progression of organic projects with a highly disciplined commitment to hurdle rates. This ensures delivery of attractive risk-adjusted returns over any volume targets. And it is this commitment to disciplined investment that drives our confidence in achieving not only our 175p to 200p guidance but also a higher quality of earnings for the group. This is high-quality value creation that we expect to be delivering for years to come. I'll now pass you over to Martin to talk through operational performance for the energy businesses.

Thank you, Barry. As Alastair said earlier, accelerated clean power targets are making our markets increasingly attractive for investments. Whilst energy markets have settled at lower levels than those we experienced during the last few years, gas prices remain historically strong. Peak spark spreads are positive and the capacity mechanism is increasing over time. Our portfolio of businesses is designed to react to changes in the price environment. High wind speeds are obviously good for onshore and offshore assets. But when the wind doesn't blow, our hydro and growing battery flexibility protects renewables from overexposure to pricing events. And our thermal fleet is able to dispatch in line with the positive pricing dynamics. Our FY '27 earnings guidance is based upon a long-term assumed power price for unhedged renewables that is consistently tracking below the GB baseload price. This is despite historically low spark spreads and a dislocated U.K. carbon price impacting the future market value assessments, both could offer upside to our price scenario. Our guidance is also underpinned by a rising capacity mechanism price in GB and Ireland, but it is also based upon a measured assessment of the option value of assets that offer market flexibility. Finally, we are continuing to lock in future value through our hedging activities and with almost half of our hedge position through gas equivalents, we would expect the outturn prices to be significantly higher on spark, carbon and traded option values are factored in. Our hedge books, therefore, offer a guide to an income floor rather than a locked-in energy value. And it really is worth reemphasizing the risk management quality of our energy book. No other U.K. competitor has day-to-day hedging and trading optionality at every price point in the merit order. This offers a level of protection and assurance to the exposures of the group that allows us to trade in additional value and supports our confidence. A key aspect of this is relentlessly converting our project pipeline to deliver high-quality, sustainable earnings growth. In Renewables, our delivery record has led to a 45% increase in output year-on-year as projects come through and generate. At Seagreen, Scotland's largest offshore wind farm, the asset is performing exceptionally well in its first full year of operations. In hydro, the plant at Tummel has been repowered and its generation potential increased with the biggest overhaul in its 91-year history, and we are carrying out other improvement works across the fleet. And we've deployed our first battery projects at Salisbury with work currently ongoing on our 320-megawatt battery projects among Fryston, which is the largest of its kind in the U.K. under construction. We continue to create future value to you. We were successful in the North Sea with Ijmulden Ver where we are looking towards financial close towards the end of 2025. In our AR6 with Cloiche onshore wind farm and in RESS 4 with Drumnahough. As ever, financial discipline remains paramount, and we will only pursue opportunities domestically and internationally where they meet the bar we have set on returns. Our focus on quality of earnings means that by 2027, around 50% of our renewables output will ultimately be contracted, providing reliable recurring income and optimizing our level of market exposure. Completion of Viking wind farm over the summer on time and on budget represented a major milestone for SSE whilst demonstrating our ability to deliver across a number of businesses. We took the financial investment decision on a merchant revenue basis before locking in value through 2 15-year CFD auctions, which achieved an average of GBP 67 per megawatt hour in today's prices. First conceived more than 20 years ago, Viking will continue to create societal and commercial value for decades as well as leaving a legacy of enabling Shetland to access the U.K. grid. Viking is just one of any number of examples of SSE showcasing its skills across energy markets in terms of commercial optimization, regulatory engagement, engineering solutions and environmental standards whilst managing multi-supplier relationships to deliver complex, highly technical projects. Seagreen offers evidence of the same, likewise Keadby 2 or Slough Multifuel. And of course, SSEN Transmission's pioneering HVDC link to Shetland, which Alistair will talk about shortly. The point is that in all of these projects, the group took a long-term approach, applied strategic insights and brought together a blend of commercial, engineering and development skills to create long-term value. In a similar way, Dogger Bank will be a world-class asset with excellent long-term prospects. As is often the case with first-of-a-kind technologies being deployed on this scale, it too has faced challenges, particularly related to the issues of the Haliade-X turbines and the remedial actions required by manufacturer, GE Vernova. We are continuing to make progress on installing and commissioning at Dogger Bank A. And as I speak, the vessel is out on site, preparing to start installation of the 32nd turbine. Improvements are starting to come through, and we will seek to make up lost ground where possible as we target completion in the second half of 2025. For their part, GE have revised their operational procedures and quality assurance thresholds, whilst introducing additional controls to ensure the long-term performance of turbines installed and commissioned. In parallel, work continues at pace on Dogger Bank B and C. We already have most of the monopile and transition pieces in place on B and are well underway in procuring a second turbine installation vessel. Importantly, even with this delay in second vessel, we continue to expect our equity returns across all 3 phases will be comfortably above our hurdle rates. And as we have learned over many years of building major infrastructure projects, it's important to take a long-term view. Dogger Bank will be the world's largest offshore wind farm, able to power around 6 million homes with an operational life in the region of 35 years. It will create real value for decades to come, whilst building deep supply chain relationships, enhancing expertise and generating further option value through a potential fourth phase at Dogger Bank D. With 5 gigawatts of renewables capacity already installed and around 2.5 gigawatts under construction, the bulk of our 9 gigawatt FY '27 target is well underway. And we have been clear throughout the execution of our plan, that our focus is on value over volume, with clear hurdle rates that need to be met before we take an investment decision. Building out with discipline may mean that it takes longer to take projects into construction, particularly given the turbulence of the last few years. However, with a portfolio of high-quality options, we believe this is the right approach to delivering value. And as Barry highlighted in May, we do not need to take FID on the 1.5 gigawatt balance to reach our FY '27 earnings target. We believe our growing 17 gigawatts of diverse early and late-stage options will be required under every scenario in the future energy system with major projects like Berwick Bank and Coire Glas capable of making a vital contribution once policy and planning hurdles are overcome. Our projects are unique in their scale, but sites like our pump storage options offer market responsiveness qualities that we and indeed the NESO and its recommendations to government believe to be strategically critical. Geographically, our primary focus remains GB and Ireland, but we continue to make progress internationally with projects under construction in Jubera, Chaintrix and Puglia, taking our Southern European portfolio of in-construction sites to over 100 megawatts. With recent auction successes in the Netherlands and with auctions ahead in Japan, we will continue to selectively grow our international pipeline where it makes strong financial sense to do so. The critical role of flexible thermal generation will play in supporting security of supply in the future energy system is becoming better understood. Policymakers are recognizing the pressing need to back up a renewables-led system and greater value is being placed on availability in a tightening market with our fleet locking in more than GBP 1 billion of capacity market revenues over the 5-year plan. As demand grows and legacy nuclear sites retire, we expect future capacity mechanism outturns to remain strong and ensure aging CCGTs can extend their asset lives. As with elsewhere in the group, delivery is the key focus within thermal and the business has operationally performed well with fewer unplanned outages during the period. Strategic milestones have also been met in the first half of the year with completion ahead of time and within budget of the joint venture 55-megawatt Slough Multifuel plant. And consent has been granted for 300 megawatts of new build biofuel generation capacity at the Tarbert Next Generation plant, a project that will contribute to much needed security of supply in an increasingly tight Irish markets. Looking further ahead, we remain committed to offering hydrogen and carbon capture and storage generation solutions as the business progresses a 4 gigawatt development pipeline that could deliver clean, flexible assets towards the end of this decade and into the early 2030s. Whilst SSE is primarily focused on the supply of electricity, it is becoming increasingly clear that the demand side can not only drive an increased need for our product, but in the form of CPPAs it can also provide vital reach to market and underpin new generation investments. In our customers' business, we are leveraging the group's capabilities across the energy value chain to offer increasingly integrated solutions to large corporates across the U.K. and Ireland. These include more bespoke green contracts, longer duration sales agreements and hybrid offerings that assist end users with their own net zero ambitions. We are also continuing to supply energy and efficiency solutions to households in the vertically integrated Irish markets and having supported customers through the worst impacts of the cost of living crisis by foregoing profits, this business is returning to more normal operating conditions. Our customers' business will continue to provide an important shop front option to our wider energy businesses in the years ahead. I'll now hand back to Alistair.

Thank you, Martin. We'll now turn to our electricity networks businesses. And firstly, SSEN Transmission, which is one of the fastest-growing networks businesses in Europe and while we continue to make strong progress on the GBP 20 billion pathway to 2030 program. I'll come on to the Shetland link in a moment, but let me start with what is the biggest single transmission project undertaken to date in the U.K. following Ofgem approval for a normal spend of around GBP 4.3 billion, ground has been broken on the Eastern Green Link 2, a project that will eventually provide a 500-kilometer link from the northeast of Scotland to Yorkshire. Meanwhile, in Orkney, all major supply chain contracts have been signed for a new high-voltage alternating current system. Consent has also been granted to upgrade the Argyll and Kintyre network to 275 kV, which is crucial to enabling renewables across the region and ensuring security of supply. The pioneering 260-kilometer subsea Shetland link shows what can be achieved at pace. The innovative GBP 660 million project was delivered on time and within budget and in conjunction with renewables delivering Viking wind farm. On the mainland, it connects to the first multiterminal HVDC switching station of its kind in Europe, a technology, which will be a core component in the electrification of our economy. The experience gained in this project consolidate our industry-leading HVDC expertise and sets the business up for growth. We've shown you this slide before, but it is worth repeating. We are already making real progress here and the tailwinds are strengthening. The NESO recently set out its recommendations on the accelerated grid investment needed to enable the U.K. government's clean power target, providing unprecedented clarity on the scale of the task. And Transmission's upcoming RIIO-T3 plan will be at the heart of it with a blueprint for upgrading and reinforcing the high-voltage network in the north of Scotland. With much of the work within the upcoming price control already built into our license conditions and with potential for that to increase still further, it is vital that the final supplement supports -- settlement supports debt and equity investment. In the run-up to submission of our business plan next month, we're working with Ofgem to ensure we arrive at the framework that best serves the needs of all stakeholders. Our asks of the regulator are clear and transparent. Firstly, we're looking for Ofgem to aim up from the top end of the cost of equity range published in their methodology decision. Secondly, they should set lower asset lights and capitalization rates that would support cash flows. And finally, the overall framework should be consistent with maintaining strong credit ratings. SSEN Distribution is 18 months into the delivery of the RIIO-ED2 price control period, which includes an ambitious capital expenditure program that is growing and modernizing our asset base. With major upgrades underway in supply chain locked in across a number of projects, we expect CapEx to continue to increase following a 20% growth in financial year '24. This acceleration will bring with it improved performance and better customer service as well as increased regulated asset value. In addition to our baseline plan, there is the potential for further upside under the uncertainty mechanisms, with over GBP 130 million effectively secured out of a total of up to GBP 700 million on offer across the price control period. And while we are growing the network, we are also making it smarter, targeting 5 gigawatts of flexible capacity by the end of RIIO-ED2 and earning early rewards for delivering flexibility services under the DSO incentive. Looking ahead, future energy scenarios point to a significant role for smart, flexible distribution networks. To do this, we need to build capacity and demand side flexibility. This is a significant growth opportunity for distribution, comparable to what we are seeing play out in Transmission now, albeit with different phasing. Distribution has published the first strategic development plans of as we seek to ensure the business is well placed to capitalize on a shift from a reactive to proactive regime. In the meantime, we look forward to the upcoming recommendations from the National Infrastructure Commission, which we hope will build on positive signals from about the need for faster delivery of strategic distribution investment. We operate in a highly dynamic sector, but right now, it is electricity networks where the race to net zero is offering the best opportunities. The premium assets SSE has across the transmission and distribution businesses are key to the growing quality and sustainability of the group's earnings profile, providing predictable, index-linked returns over the long term. SSE's unique position as a key enabler of renewables potential of the North Sea is providing double-digit additions to RAV annually over the course of the 5-year plan to financial year '27. And this growth is only accelerating. Clean power can only be delivered with modernized electricity networks. Accelerated transmission growth is already in the construction and delivery phase, and distribution will be next. This morning, we presented the details behind a strong start to the year. Excellent progress up to the halfway point in the NZAP Plus program gives us added confidence in our 175p to 200p adjusted EPS target for financial year '27 with clear visibility of growth within our renewables and electricity networks plans. Let me sum up with a brief reminder of why SSE is at the heart of the energy transition. The role we will play in the 2030 Clean Energy plan presents an unprecedented growth opportunity. We've deliberately built a business that is mission critical to the electrification of the economy with world-class assets across renewables, flexibility and networks. And we are creating real value through our focus on delivery, the resilience and optionality of our business mix and the combination of underlying balance sheet strength and capital discipline that allows us to pursue growth when and where the value is greatest. This is the right business, in the right markets, at the right time. Thank you. And we'd be delighted to take your questions now. Over to the operator, please.

[Operator Instructions] And now we're going to take our first question, and it comes from the line of Mark Freshney from UBS.

Firstly, something you haven't mentioned much in the presentation is just on Berwick Bank, which could be an immensely attractive project and you own 100% of it. Planning for the offshore part has been very frustrating. Can you update us on what the issues are and when you might expect resolution and the final consent? And my second question is just on ambitions outside of the U.K. and Ireland. Clearly, you have an option in an offshore wind farm in the Netherlands. But given sentiment and presumably valuations in Europe and North America are low, how do you think about potentially deploying balance sheet capacity there and exploring opportunities there potentially a low point in the valuation cycle?

That's great. I'll just touch on the second one and then I'll give Martin a go at both of them. So I think you're right, you've seen valuations come down to more predictable levels and easy levels to digest. We've obviously got a portfolio and a growing portfolio of overseas assets currently. We're very focused on converting those into built assets that can start earning us money, but we will remain vigilant as to what other opportunities are available. I think at the moment, the focus is definitely organic, but we wouldn't rule out M&A where we can see value in Europe. And I think despite the fact we've got a fully funded plan, we do have an enormous array of opportunities in our current markets and with the acquisitions that we've already made of the Siemens Gamesa business in Europe and also the business Pacifico over in Japan. So I think we've got to be mindful of the fact that they will all require quite a lot of capital over the balance of this decade. But Martin, Berwick, and anything you want say on Europe?

Yes. Just to complete your point, obviously, we made our acquisition in Southern Europe a couple of years ago, I mean, maybe that's gone a bit slower than we expected, partly because of grid and consenting issues. It's not unusual or unique to us, but it is a 4.3 gigawatt pipeline that we've said in the presentation, we see the strategic need for. And obviously, if anything, since you made that acquisition, most European countries have increased their renewables ambition and the time scales for that. On Berwick Bank, it's a 4.1 gigawatt wind farm in 3 phases. The Section 36 was -- consent was submitted 2 years ago in December 2022. That is with the Scottish consenting authorities. We still await their decision, but we are hopeful that we'll get a determination before the closure of the AR7 eligibility window.

Okay. Does that help, Mark?

Perfect.

Now we're going to take our next question, and it comes from an of Rob Pulleyn from Morgan Stanley.

The first one, I suppose -- or congrats Alastair on the news that you'll be having an easier life. I think you've been a great servant to SSE. And I think it's a shame to see you go sort of at this juncture where things are really starting to accelerate. So I mean the first question on that, we know, obviously, it's a slightly different message to when Gregor left, so if you could just maybe a little bit in terms of what the passage you are in, in terms of the succession plan and how that pans out? And the second one, just to pick up on Dogger Bank, if we could. You're talking about underway in terms of procuring a second installation vessel. I appreciate there's lots of commercial sensitivity. But could you give a bit of a steer as to when all of this could be boxed up and put behind us given obviously a lot of market focus on this particular project, which is relatively small within the wider portfolio of the SSE story given what's going on in Networks?

Fine. I'll let Martin deal with Dogger. Succession. Yes, look, I've been at SSE for -- I've been at SSE for 27 years and over 11 of them now as CEO. I think we're getting to within touching distance of the '27 targets. And I think the key thing for the Board and for the company is not only that '27 delivery, but what we do over the balance of the decade and beyond. And so I felt now was the right time for the company for me to let the Board have the opportunity to basically ensure there was a smooth succession process, give them plenty of notice on that, and for them to hopefully supplement the fantastic team that we've got in any way they feel necessary and appoint my successor. So I'm around until sometime later in 2025. I remain very focused with the rest of the executive team on delivering that strategy and delivering 2027, and we'll let Sir John, Korn Ferry go through the process that they need to. We'll run a full and transparent process to make sure that we get the best talent possible. And in the meantime, we'll carry on, and I'll make sure that there's a smooth transition as and when the Board decide what the best course is going forward. But look, yes, past is new, yes, I suppose, that one came up on CNBC this morning. So I'm not intending leaving the workforce. I hope to contribute a bit to the productivity of the U.K. going forward, but no idea what that is. And I'll just remain very focused with the team on doing what I need to. Then Dogger.

Yes, just very briefly, we're in advanced discussions on the second vessel, and we hope to conclude those shortly.

Now we'll go to our next question, and that comes from the line of Peter Bisztyga from Bank of America.

Also congratulations and best wishes to Alistair from my side. I want to sort of focus a little bit more on Dogger Bank, if I may. So firstly, following on from Rob's question on the installation vessel, we've seen vessel rates increased significantly. Orsted had to do another impairment recently on higher rates. I know you're not going to sort of comment specifically on this, but can you at least reassure us that when you say returns are comfortably above hurdle rates that comment factored in the higher vessel costs that you anticipate? And also, can you talk a little bit about what the knock-on effects of the delay that you've had at Dogger Bank will be on time line of Dogger B and C? So I'm just wondering how much of that delay can you sort of claw back with those kind of future projects? And then maybe just 1 final point on the time line process from GE Vernova's perspective, are you completely comfortable there? Or is there any risk of issues there that could further impact your project time line?

Sure. Okay. Barry is going to run you through returns, but obviously, we'll have taken account of all the evidence and issues that are there. And I don't think you can assume that vessel rates are necessarily higher than we might have expected or otherwise. I just wouldn't -- I'd just be careful about making assertions or assumption. But Barry, if you run through the assumptions, and Martin fill in.

Yes, no, thanks, Peter. Yes, look, as you expect, we've been around the model in quite a bit of detail, and we've baked in what we consider to be the reasonable cost on that. I think standing back, clearly, there is an impact on returns because of the delays. But what we've said is that is still comfortably above our hurdle rates. I know there's a few reasons in that, we've spoken before about the higher inflation coming through the CFD and the low fixed interest rates coming through as well. But also as project delivery moves to the right, so does the timing of our equity injection project also moved to the right. We've also have project contingencies we've mentioned before. Clearly, we're now going through them. There's obviously in a standard contract like that, there would be liquidated damages. There as well, which I'm not going to get into the detail on that. And then also the longer commissioning period goes on for -- it means you're delaying the start of triggering the CFD rate. So those turbines that are in that pre-commissioning period are getting the higher merchant power price. So you put all that together, and we're comfortable that we are comfortably above the offshore hurdle rate with delivery in the second half of 2025.

And just anything on GE?

Yes. So I think firstly, you asked about Dogger Bank B and Dogger Bank C time scale. So we've always said each projects will follow a year after. That still remains the guidance. So therefore, Dogger Bank B, second half of '26; Dogger Bank C, second half of '27. In terms of GE, I mean, it's probably fair to say we have very detailed and consistent meetings with senior project management. We have a weekly performance and planning reviews with them. We think those are going quite well. They share their detailed plans, and we discussed those. I will say I had meetings with the CEO. So we have very good relationships and very good contacts in terms of how the project is going. And obviously, there have been some issues. But as we said, in our presentation, the revised operational quality assurance thresholds have slowed down installation, but that is all factored into our second half of next year guidance for Dogger Bank A.

Now we're going to take our next question, and it comes from the line of Deepa Venkateswaran from Bernstein.

Alistair wishing you a more relaxed retired life to start with. I have 2 some questions. Sorry to labor about Dogger Bank, but it's a clarification to the answers you provided. And the second one was on RIIO. Let me start with RIIO. So I've seen that you very explicitly now outlined an expectation of more than 10% nominal equity return on RIIO-III. I believe this is new. And in the past, you've not sort of done that. So could you sort of explain -- I mean this implies that you do expect some outperformance. So maybe if you could just walk us through the bridge of how much is the allowed returns plus outperformance and your inflation assumption in that 10%? And on Dogger Bank, just to be clear and to clarify, you've got this vessel contracted until the end of '26, but seemingly, Dogger Bank C will go on to second half of '27. So is the expectation that this second vessel is what would enable you to, a, accelerate your build-out rate for A,B, C and then also help you cover the last leg of Dogger Bank C? And I think with GE Vernova for one of the other projects, they have provided for some vessel contingency costs for the other project. I was wondering whether they would be pitching for some of these extra vessel costs, which are partially because of the quality problems and issues with their commissioning and installation?

Okay. If we start with Dogger and then probably myself and Barry both have a go with the 10%. I've got a simple view, Barry might have a more complex and detail view.

So just on vessels, Deepa -- so we'd expect, clearly, as a second vessel arise some overlap with the existing vessel. And obviously, in our plans that we've just talked about and our delivery plans, there is an assumption about how those vessels operate and install store through the period. So yes, a second vessel will be there, obviously, for Dogger Bank C.

Do you want to look at first half of the second vessel?

Deepa said, well even over pick up the [indiscernible]. I think in terms of going through all the plans we have and all the knowledge that we have about what's going on, I don't think we see material differences in the rates going forward. And I think at the moment, we would also say B and C in terms of returns will be above our hurdle rate. So I think that's kind of where we are. So we're clear on timing. We're clear on hurdle rates. I think if we start going into individual assumptions, you'll decide that one is positive and one is negative and all the rest and without going through hundreds of them, which is obviously what we do and why we have specialist teams, it's very difficult. I think you've just got to accept that the returns, we see as being reasonable, and we've got a current time frame and sort of speculating on where we are with individual providers and everything else. If there's anything material, which is material to our earnings, we would definitely put it out there, we'll let you know. Okay. Just on that -- well, on the RIIO 10%, my simple level, we have just been clear with the regulator and government that if they want investability in the transmission network, they need to be looking at a 10% nominal rate. That is what is required in the international markets if you're going to get transmission assets away in terms of that level of investment, and you end up with a 6% to 7% cost of equity, 2% or 3% on inflation and maybe 1% on outperformance in some way. And you can cut it in various ways, but ultimately, you need to be aiming at that kind of level for that kind -- and that's all I've said about it publicly. But Barry?

Yes. Look, I think that's the key point. But we're focused on the overall framework, Deepa. So it's obviously the cost of equity and there's the cash measures as well that Alistair talked about earlier on. Look, yes, so the sort of cost of equity, it's a real number. Cost of equity is a real number that's in the Ofgem methodology. Clearly, you need that inflation and then there's incentives and outperformance on top of that. But look, we're in detailed discussions with Ofgem at the moment. So I don't think you'd expect us to give any more specifics around at this stage, but is part of that overall framework that we're very much focused on.

Now we're going to next question, and the question comes from the line of Harry Wyburd from BNP Paribas Exane.

I'll add my congrats and best wishes to Alistair. First question actually on one of the comments you made Alistair been touching distance on the 2027 target. And it's been a little while since you've done at Capital Markets Day style update and a lot has changed since you last set your 2027 guidance range. So that sort of peaked my interest. Do you think you're going to do another strategic update in the near term and before your departure, Alastair? And I just wondered could there be a send-off here. And if you feel like you're in good shape versus 2027 targets, I think could that be an opportunity perhaps to bring something positive to the market? I'm fishing that, but would be interesting in our thoughts. And then secondly, we have the press on a tie-up with EDP. I guess there's a limit to what you're going to be prepared to say on this. But you mentioned you might be interested in sort of opportunistic bolt-on renewables deals earlier. So institutionally as SSE, would you consider a transformational deal or tie-up? Or is this just a normal course press speculation?

Okay. On an update, I think we'll provide an update whenever we think is appropriate. I don't think you should have anything to do with my timing or any other timing for that matter. We have a fully funded plan out to '27 currently, and we're working hard to make sure we deliver that. And also, as I've indicated, clearly, we've got our eyes on what we don't need to do out to 2030 and beyond. And at the right time, we'll do whatever we need to do around capital markets updates and things of that nature. But look, there's a fully funded plan there, and there's a lot of focus on delivery, and we're delighted with the strong results we've had in the first half. Press speculation, we just don't really comment on it. I don't think there's anything more we can say on that. More generally on our aspect, I think we're always looking to create value. Institutionally, if there's a good deal to be done, we'll do it. And we've -- I suppose the most recent one, Triton was a very good deal for us and we continue to look at assets as they come along. We've got a fantastic growth pipeline. We've got a lot to do to go and deliver that over the period out to the 2030, let's say, just because I suppose that's roughly when the government around, and that's their clean power plan, and we remain very focused on that organic plan. But as we've demonstrated in the past with SSGRE, Pacifico, Triton, if there are assets out there that we think are attractive and give us the right opportunity to grow, then we'll take that opportunity.

Now we'll go and take our next question, and a question comes from the line of James Brand from Deutsche Bank.

Also, congratulations Alastair and thank you for your long-serving leadership. I have 3 questions, if that's okay. Firstly, on the dividend, you obviously grew the dividend by 6% at the half year, which is obviously a kind of an interesting marker in the first period after rebasing, and it's at the kind of low end of the 5% to 10% targeted range. So I was just wondering whether you could kind of talk through what your thinking is there, why 6% is the right number? And if there's any kind of criteria you would use to assess whether you would be at the low end or the high end of the range? Second question is on emissions trading. I was wondering whether you could just share your insights because obviously we still have quite a low U.K. carbon price. We obviously have a new government. I haven't heard Ed Miliband talk very much about emissions trading, but maybe I missed it, maybe he has. But I was just wondering whether you have any insights in what the new government was thinking about emissions trading, whether you thought that they would kind of tighten the scheme up? I mean you can see high comp prices at some point in the U.K., given how much ambitious the decarbonization agenda is? And then thirdly, just is there any update on how market perform in terms of timing or any kind of messages you're getting from the government? And obviously, particularly around the idea of kind of localized pricing, that would be great?

Perfect. I'll let Barry start on divi and Martin will pick up the other 2.

Yes. Look, thanks, James. So look, on the dividend, look, we obviously have an established dividend policy of growing by 5% to 10% per annum to FY '27. And in terms of the criteria, we reflect on, we needs to be sustainable based on sustainable earnings performance, but more importantly, enabling us to fund our very attractive long-term growth prospects. So we set the interim dividend accordingly. But I think the important point here is there's been no decision will be made on the full year dividend until we have the full year results, and we'll come back to that in May.

Okay. So yes, I mean, firstly, on locational marginal price, you probably don't have any more kind of color on timing than you already have, we expect to make kind of policy recommendations in perhaps the spring of next year. And obviously, we'll watch that closely. Just for completeness, our position clearly hasn't changed. We think locational marginal pricing would be off putting or damaging for investment at a point when clearly a Clean Power 2030 plan is encouraging the opposite, and we're not alone in that view from developers or generators either. And we particularly believe given the progress that's being made on networks build. And also, I should add the progress has been made on policy in terms of capital flow for long-duration storage and perhaps some of the medium-term need for this goes away as these assets get built. And that is a position that, as I say, it's not unique in the market. Then in terms of carbon, you're right, clearly, the delta between U.K. carbon and EU carbon remains high. I think we've said in the past that we expect over time that to narrow. Again, that opinion hasn't really changed. We haven't -- also haven't heard the government talk too much about that. But clearly, there's a few policy things in the background that may kind of accelerate that conversation, including how CBM is working, et cetera, and how they impact the U.K. and European carbon markets. So we continue to watch that very closely.

Now we'll go to the next question, and the question comes from line of Dominic Nash from Barclays.

I'll reiterate what the sort of previous analysts said about, best wishes to you, Alistair, on the announcement. A few questions from me. It's probably sort of 2, probably 3. So apologies for that, but they're all linked. And it's all about, I guess, firstly, sort of Dunkelflaute, or however you want to pronounce it, that we're kind of currently seeing and linked to the sort of Clean Power 2030 targets. So just to put in context, clearly, the balancing costs are very high in the U.K., I think, about GBP 11 a megawatt hour on average. And there's a significant sort of push to build more renewables. So is there a risk, first of all, you're putting the cart before the horse. And then the questions that come out of this is, when do you see balancing costs or the economic sort of rent that your thermal power picks up and your balancing -- and you're peaking pump hydro pick up? When you see this peaking, is it going to be sort of 2030? Is it going to be -- keeps on rising if it peaks at all? Second thing is when you build your new wind farms, what sort of curtailment levels are you now putting through in your base case, which is clearly going to be part of that sort of balancing one? And then sort of the final question, so apologies for this, which is on the other side of the equation, those that benefit your CCGTs in particular. Have you -- I mean, you see in the presentation that you've got plans for decarbonizing by 2030. What do you need to do? What future proof they got and what the costs involved on getting the CCGTs ready to take advantage of this sort of volatile world we're moving into?

Okay. A pretty good set of questions there. Just because I cover the Networks a bit, I think one of the key things on constrained cost is to make sure that we build the networks so we can get the power from where it is available to come from, i.e., the renewables resources and/or wherever you cite low-carbon flexible to the demand centers. So build of networks is critical, which is what's been talked about generally. And obviously, you can see a lot of that coming through, particularly in transmission and starting to come through to some extent, distribution. But otherwise, I think flex income peaking curtailment levels in wind farms and CCGTs, Martin?

Yes. So I mean again, just for context, I mean, clearly, the Clean Power Plan had an enormous amount of renewable investment assumptions in the offshore wind going up to somewhere between 43 and 50 gigawatts and onshore wind effectively doubling. And there is also in there an assumption of 35 gigawatts of CCGTs providing a 5% load factor. So I guess that implies that by 2030, there is still information, rent available for CCGTs on the market. And certainly, as the system is looking to balance all of that, we'd expect the need for our CCGTs to still be there. Just wrapping in your third question slightly into that, you asked about what do we need to keep our CCGTs available and reliable. We are well engineered on our CCGTs, our reliability, I think, is market-leading, and our legacy fleet has been performing very well. We mentioned that in our presentation, and we continue to invest in making sure those are very good engineering solutions that are reliable and can come on at short notice and hit what National Grid might need. So I don't see that changing. Obviously, the capacity mechanism and the way that works is important to remunerating the cost of providing that high level of quality engineering. But obviously, we mentioned in our presentation, we also believe long-term capacity mechanism prices should stay strong for that reason. And then on the constraint levels and balancing costs, and obviously, we're not going to tell you completely what's in our model, but obviously, we are aware of balancing costs in the U.K. And we have always said that as much as a wind fleet might be exposed to intermittency costs, that is why you need flexible generation, including not just the thermal, but pump storage and flex hydro and indeed increasingly flex batteries behind that to balance that off. And so that is the risk management quality of the book we talk about and how we see the thing around.

So as -- the last one was CCGT, but sort of particular phase...

I think I've dealt with that on the...

Yes, yes, that's fine. Dominic comfortable? We've picked the ball off?

Yes, probably [indiscernible], but what's the curtailment? I don't think you answered what you think of your curtailment sort of modeled is in your wins at the moment? .

So what I'll say on that is, obviously, you see curtailment, we don't -- we won't obviously disclose that, but we see the balancing issues on wind would argue as a very good risk management book is moderated or netted off by the flexibility we have on the other side. And part of our build on batteries is to increase the value of that protection.

Now we'll go take your next question, and the question comes the line of Charles Swabey from HSBC.

I have 2. One, first on thermal. You seem to be a little less confident on delivering above the GBP 200 million this year. I was wondering if that takes into consideration the poor wind conditions we had over October-November? And then the second one on offshore. I was wondering if you could just update us on the plan for Seagreen 1A in the U.K. and Arklow in Ireland in terms of if you think Seagreen will be available for the next AR auction? Or any thought on how to get this to market?

Okay. Yes, sure. Do you want a thermal forecast?

Yes, Charles, thank you. Yes. So look, we said in May, we expected thermal to deliver greater than GBP 200 million in a low volatile scenario. But really, what we've seen over the first 6 months of the year was extremely low volatility and low running in our thermal division. So reflecting that, we feel it's more sensible now to say that would be around the GBP 200 million mark. That's not to say, clearly, that, that can change. Clearly, thermal can respond very quickly to market conditions, but it's very much based on what we saw over the first 6 months and how we performed over that period.

Yes. And then just on your question. So firstly, on Arklow, so we are -- we continue to work on exploring CPPA solutions for route to market for Arklow. And obviously, we've got our -- we're looking for secure our final consent and then all being well, we'd point to, again, the long-term policy backdrop, which is highly constructive for offshore wind in Ireland and do we still think Arklow should be a lead project. And then, I think the other question is Seagreen 1A, which -- yes, in theory could qualify into AR7, but that will be a decision for Seagreen.

And now we'll go and take our last question for today, and it comes to line of Ahmed Farman from Jefferies.

Yes. Firstly, Alistair, best wishes from my side as well in the future. Maybe, Alistair, I wanted to start with you. Could you give us a little bit of your perspective on the work you're doing or the work you've done to secure supply chains for the delivery of your electricity transmission plan? And what sort of visibility you have or you're working to get both on pricing and volume. Maybe a second question on the Thermal business. I know you sort of made comments around the GBP 200 million. But I just was wondering if you could just give us a little bit of an update on what you're seeing currently in the market and into the winter in terms of spark spread in terms of electricity demand? Give us a sense of the balance of risk around the Thermal business outlook?

Yes, sure. Okay. So I think the critical things on transmission and we will be putting our business plan out in around a month-or-so or just under a month from now for the next review period, which will run from April '26 through to March '31. You probably -- you've probably seen that we've put out the ASTI and LOTI projects. There was a slide in the pack on that, that I called out having shown that before with the 11 projects. We have procured those projects in the sense of having locked in all the major components of the supply chain so we can deliver them. We haven't locked down all of the costs and that's partially because not all of them have received full planning consent. And so there may still be some alterations to them. But we obviously have where we've got all the consents and have started moving forward, for instance, with Eastern Green Link 2 that again, we called out, we have pinned down the cost, and we have essentially agreed those and gone through consultation with Ofgem on those. So I think all costs are not pinned down because that's subject to some tendering but we have actually pinned down the supply of all the key components, HVDC cables and things of that nature. There are some aspects of probably the underlying spend, repairs and maintenance, testing, monitoring, things like that, the sort of a certain spend that we might have that we will have a very good view on going forward. And in a normal process of a price control, we'll also have to take a view because we'll have to commit to Ofgem on to certain items that we know what the costs are going to be. And then there will be another part of it, which is the uncertain stuff, which is some of what you see coming out of the NESO plan and what we anticipate coming out of the extended NESO plan into the 2030s. Well, we haven't locked all that down yet. I think we have good relationships with suppliers in respect of that, and we obviously have a good track record and good frameworks. And I think we're ahead of a lot of people. I would say [indiscernible] in Europe, we're probably ahead of anybody else in procuring certainly some of the big HVDC. But after that, I think our procurement is advanced as anybody else within Europe and certainly anybody within the U.K. So there's a very, very big slug of what you'll end up with in that business plan that we have locked down, but there still are some significant uncertainties in there, and we can obviously talk a bit more about that when we come out with that business plan in a month-or-so's time.

And then just on spark spreads and thermal. I mean obviously, the summer is very high renewables. We've obviously reported that in our results are positive for renewables, but it was pretty benign in terms of volatility in spark spreads for thermal. Obviously, we've seen a different set of circumstances emerge over the last 2 to 3 weeks, where I believe we've seen the second and third highest daily spark spreads over the last 2 years being set in the market. And indeed, our thermal fleet has been running at much high load factors as a result over the last 2 to 3 weeks and indeed is running right now. That's obviously a set of conditions, which I think Dominic referred to as Dunkelflaute earlier. And therefore, right now, the market isn't necessarily pricing that in going forward. So we still see Q1 peak spark spreads at around GBP 10, which is probably about the number I was talking about in the summer.

Okay. Does that cover it, Ahmed?

Yes.

Okay. That's great. Thank you. Moderator, any more questions?

There are no further questions. I would now like to hand the conference over to the management team for any closing remarks.

Okay. That's great. All right. Thank you all for your questions, and thanks to our moderator. Before we go, I'd like to leave you with a few closing thoughts. We're very pleased with the interim results presented today, but we see them as part of a much bigger strategic picture. Our main focus is on further EPS growth at the full year, and we'll update you on our expectations in due course. In the meantime, it's back to the task of growing the business and delivering on the investment plan that is behind our confidence in the financial year '27 adjusted EPS target of 175p to 200p. I believe that the company is extremely well positioned to thrive as the race to clean power in 2030 gathers pace, and my successor will benefit from the support of a hugely talented, diverse and dedicated senior leadership team when that time comes. So thanks again. We look forward to speaking to many of you in the weeks to come.