SSE plc ($SSE)

Good morning, and welcome to today's presentation. I'm pleased to share my first full year results as SSE's Chief Executive, and I'm joined today by Barry O'regan, our Chief Financial Officer. Protecting the people who work for us is always our top priority. So let me start with a few words on safety performance. We met our overriding safety goal of no life-changing injuries and our combined total recordable injury rate has remained similar year-on-year. Over the last 5 years, we've seen a doubling of contractor hours worked as investment accelerates. However, injury rates have remained flat across that time. We believe this has been meaningfully aided by our industry-leading immersive training program in which around 14,000 people have now taken part. As our construction program continues to grow, investments in building and maintaining a strong safety culture will be more important than ever. We'll be delighted to take your questions on our results. But first, we'll briefly talk through the progress we've made this year and the momentum that is building behind our GBP 33 billion investment plan. We undoubtedly operate in markets with huge complexity, volatility and change. Since I joined the Board in 2017, we have now seen 4 large price events driven by interplays of geopolitics, asset failure, a global pandemic and extreme meteorology. Through all of them, our portfolio resilience has been evident, and we've adapted to the circumstances that have emerged, and so it is today. The conflict in the Middle East has once again put energy back at the top of the global news agenda. In response, governments are looking to strengthen energy independence and protect consumers from price volatility. Accelerating electrification and building homegrown infrastructure will not only bolster energy security and reduce exposure to fossil fuel imports, but also cut bills and support economic growth. Our strategy, backed by the efficient operation of our existing assets delivers on all of these fronts. In networks, we are carrying out the biggest upgrade to Britain's electricity system in decades, which will drive economic growth and unlock the benefits of affordable clean energy for consumers. In renewables, we are delivering projects that will increase homegrown energy capacity at scale, systematically reducing future exposure to commodity volatility. And we are providing dispatchable flexibility services, which are critical to ensuring security of supply and enabling faster decarbonization. Investments across these 3 pillars is the best way to build true energy independence and through lowering reliance on gas, delivering sustainably lower bills for customers in the long run. Consumers are already starting to see tangible benefits from our investments with the system operator confirming that our transmission business delivered almost GBP 300 million of savings for consumers in the last year alone. In short, there is increasing impetus behind the drive to electrification with the strategic and system value of networks, renewables and flexibility becoming increasingly clear. As governments push to go further and faster in the pursuit of national energy security and affordable bills, our business has resilience today and promises growth for decades to come. It's important to set out why our unique combination of networks, renewables and flexibility provides resilient growth across the range of future energy scenarios. We focus our operations in countries with robust policy frameworks and have a high level of regulatory certainty underpinning our investments. We have a diverse and premium asset mix with accelerated delivery of networks complemented by disciplined renewables additions and highly efficient flexible generation. Our pipeline contains optionality across the value chain, whether in networks growth throughout the 2030s or the over 20 gigawatts of generation potential. Investment into this unique mix is driving increasing levels of index-linked earnings, which are set to grow to around 80% by 2030, providing increased security in a volatile environment. We benefit from balance sheet strength. 90% of our debt is held at fixed rates with long tenures, backed by strong investment-grade credit ratings. And our relentless focus on delivery shows up in our highly attractive total shareholder return as we sustainably grow earnings and capital. This is a growth business in a growth sector built on strong resilient foundations that will create sustainable value no matter the political, regulatory or macroeconomic environment. In November, we translated an extraordinary investment opportunity into a clear 5-year growth agenda. And whilst we have premium options across the group, the single biggest opportunity right now is in transmission, which is at the heart of our fully funded GBP 33 billion plan. With the right people, systems and supply chain in place, we are already delivering on the plan and are poised to scale it up. 80% of our investment is in regulated networks and delivers a compound annual growth rate of around 25%. This makes SSE one of the fastest-growing electricity network companies in the world. With continually increasing levels of high-quality index-linked earnings, we have clear visibility to our target of 225 pence to 250 pence earnings per share by 2030. Following the November equity raise and today's FY '26 earnings announcement, this is equivalent to a 10% to 13% annual growth rate in earnings, which together with our progressive dividend approach will continue to deliver a highly attractive TSR. The resounding support from investors when we announced the plan was clear. And as delivery accelerates, our excitement continues to grow. This is not just a plan on paper. It is being delivered on the ground, asset by asset as development becomes construction and as construction becomes operation. 3/4 of transmission consents are now approved and the remainder are progressing through their respective processes. We have delivered an 80% increase in transmission investment year-on-year with construction now underway on 5 mega projects in the north of Scotland. With the supply chain secured, pricing risks managed, the right resourcing and experience to draw on and the price control agreed, we remain confident of delivering this transformational investments. Our distribution network is preparing for the first step in a multi-decade growth opportunity to enable widespread electrification with our ED3 business plan submission later this year. In renewables, we are pleased with the ramp-up in turbine installation on Dogger Bank and also Berwick Bank CfD success. And in flexibility, we continue to play our part in supporting security of supply in our home markets with around 1 gigawatt of critical dispatchable capacity additions underway between new flexible generation at Tarbert and Platin and across our battery portfolio. Recent macro events have underlined the resilience of the group, and our exciting story is one of long-term structural growth being realized through the delivery of our investment plan. We are building critical national infrastructure necessary for energy independence, climate action and sustainably lower bills. And in doing so, we are creating value for shareholders and society. I'll now hand over to Barry before coming back to the business review.

Thank you, Martin, and good morning, everyone. I will now take you through the financial performance of the group in a year where we delivered on our financial targets and significantly upweighted our growth ambition with a bold investment plan that is set to deliver for decades to come. As expected, FY '26 earnings were lower than the prior year, reflecting the expected impact of lower distribution earnings and the dilution from our November equity raise. This did not stop us delivering on the commitments we made for the year with 153.5 pence earnings per share, which is towards the top end of our full year guidance. Our networks investment program has accelerated during the year, and you can see that pace through a record annual CapEx of GBP 3.6 billion delivered for the group. This investment is feeding directly into compounding growth in the regulatory asset base, driving high-quality underlying earnings, 60% of which were index-linked this year. And given the high-quality underlying returns achieved and our confidence in the outlook driven by investment across networks and renewables, we are recommending a 7% increase in dividends for the year, in line with our progressive dividend policy. I'll focus first on results for Networks. Our combined transmission and distribution businesses delivered investments and adjusted operating profit in line with expectations. The continuing step-up in transmission investment is already beginning to come through earnings in the price control mechanic. Transmission CapEx is up 80%, reflecting accelerating progress being made across the 5 major projects under construction. And while distribution earnings fell significantly year-on-year, this was expected and is principally due to the prior year benefiting from inflationary catch-ups. Capital investment in these businesses has been particularly strong, around a 60% increase in prior year, delivering more than 20% increase in RAV, which will provide the foundation for sustainable earnings growth in future years. Taken as a whole, our Networks business have delivered very strong financial and strategic performance in the year. Moving now to the Renewables business. Whilst wind conditions overall have been broadly in line with long-term averages, we have seen mixed conditions during the course of the year, particularly in quarter-to-quarter hydro variability in addition to the lower expected year-on-year hedging prices. Despite these challenges, the business has seen a strong year with adjusted operating profit increasing to an all-time high as new capacity additions continue to come online. And it was encouraging to see that in addition to the new contributions from Dogger Bank and Yellow River wind farms, asset availability remained consistently strong across the portfolio, supporting overall performance. Overall, this business has made strong progress on its construction plan while maintaining value over volume discipline on our development pipeline. In Flexibility, earnings from our conventional thermal generation and gas storage businesses were slightly lower than prior year, reflecting various outages across the fleet and the prevailing market environment. Spark spreads have continued to be relatively low, while seasonal spreads remain disappointing for the Gas Storage business despite market volatility. However, both flexible generation and gas storage continue to respond well to energy crisis on behalf of consumers, underlining the need for these assets to reduce system risk and provide long-term security of supply. In Energy Customer Solutions, we have seen lower earnings as expected, mainly due to lower wind revenues and supply volumes. We continue to invest in this area to extend our range of product options and help drive wider growth opportunities for the group. And finally, our Energy Markets business remains central to managing market volatility, mitigating risk and maximizing value for the group, demonstrated by an increase in profits this year. Ensuring that we maintain a well-run business continues to be a priority, and we have made good progress in delivering our efficiency program. We have focused on aligning the group behind the transformational investment plan we announced in November, which has included necessary resourcing decisions. Enabling, harnessing and deploying new technologies and innovations are a key focus and are being prioritized through this process as accelerators for the energy transition. We are also enhancing our culture and strengthening management for a faster-paced, more commercially minded organization that is best placed to capitalize on future growth opportunities being created. Collectively, these efficiency measures are expected to deliver over GBP 100 million of savings during FY '27, and will reach over GBP 200 million in recurring savings by the end of FY '28 when the full benefits of the program have been realized. Looking at earnings and dividends. Net finance costs decreased during the year as increased construction activity and the GBP 2 billion equity raise more than offset a slightly higher cost of debt. As expected, this higher construction activity is also driving our tax rate lower through an increase in capital allowances. And finally, the timing of coupon payments on newly issued hybrid capital meant that hybrid charges were flat year-on-year. Turning to the balance sheet. Our strong cash flows and the proceeds from the November equity raise meant that our adjusted net debt and hybrids were flat on prior year despite the record investment delivered. Leverage was also stable at 3.3x net debt to EBITDA, well within the thresholds of our strong investment-grade ratings, which have recently been reaffirmed by the rating agencies. 92% of our debt has been secured at a fixed rate, providing protection against inflation at an average cost of debt around 4.1%. And we have increased levels of liquidity with around GBP 7.4 billion available at year-end, which will cover our net financial commitments for the next 17 months. Ultimately, we remain committed to maintaining a strong balance sheet and our investment plan has a range of funding levers, including asset rotation options across the portfolio that will mainly be delivered towards the end of the plan, in line with the capital investment. As Martin mentioned at the start, the conflict in the Middle East means we enter FY '27 against the backdrop of a volatile macro environment. And whilst we continue to monitor developments, we do not currently anticipate any immediate change to our projections for the group's performance for FY '27. This is a testament to not only the strength of our growth plans, but also the resilience of our business. Our underlying FY '27 earnings expectations remain unchanged since they were first announced in May 2023, having been adjusted to 168 pence to 193 pence following the share issuance in November. Our assumptions are based on the strength and clarity of opportunities immediately ahead of us and our emphasis on capital discipline and operational efficiency. We benefit from inflation protection mechanisms built into our core businesses, contracted supply chain and a hedging approach that reduces our exposures to commodity market variables. We expect significantly higher profitability in transmission over the coming financial year as investment continues to accelerate. While in distribution, we expect similar levels of profitability as FY '26. For Renewables, we expect the continued capacity additions will deliver increased output that will offset lower forward prices. And in Flexibility, we have already secured an increase in capacity payments for the year, providing a solid foundation for earnings growth. Looking further forward to FY '30, our earnings expectations of between 225 pence to 250 pence also remain unchanged, and the slide outlines some of the earnings drivers. Central to that outlook are the regulated networks businesses, receiving around 80% of our investment and providing a stable underpin for the majority of earnings and asset growth. I'll close by reiterating we have continued to deliver strong operational performance throughout the year, resulting in a good set of results towards the top end of our expectations. I'll now hand back to Martin for the business review.

Thank you, Barry. Our Transmission business represents one of the fastest-growing networks globally, and we're seeing that coming through with the 80% increase in investment this year. Ofgem's strategic approach to regulation has provided unprecedented and welcome visibility on investment to 2030 via the ASTI and LOTI programs. We now have an investable and deliverable RIIO-T3 settlement and with supply chain secured and resources and skilled people in place, we have real momentum. Significant planning progress has been made, too, with around 75% of our consents granted and decisions expected on outstanding 9 within the next 12 months. Spades are in the ground with 5 major projects now fully consented in construction and progressing well. But with the continued push towards electrification, the need for further investment in large-scale transmission infrastructure does not end here. We are currently working with the system operator to identify and progress further onshore reinforcements and subsea links for delivery during the next decade with NIO's report expected in the summer. Any infrastructure program of this scale must be highly sensitive to the views of the communities hosting it, which is why we undertook one of the largest public consultation exercises Scotland has ever seen. Based on community feedback, we have recited substations and altered routes while also providing new community benefit funding projected to be over GBP 100 million alongside supporting the delivery of 1,000 new homes. This is a lasting and meaningful legacy for the North of Scotland. In terms of the capital program, the pathway to 2030 major projects, 6 onshore and 5 offshore continue to make good progress. 9 consents remain outstanding with the final marine consent expected towards the end of the summer and 3 overhead lines in public inquiry processes similar to those we have navigated in the past. Of the substation consents, 4 are with the Scottish government on appeal with the fifth to be reheard by the relevant council this summer. Each had support of local planning offices, and we remain optimistic of a successful outcome in all these cases. It is important to note that our plan had assumed a certain amount of delay for challenge and our overall investment we set out in November remains on track. Construction is also progressing well on the Auckley Link project on Eagle 2, where cable manufacturers started earlier this calendar year, in Argaland Sky and on Spittle Peterhead, where we have awarded our largest ever contract at EUR 2 billion with NKT. And work is not just progressing on these 5 projects. Early construction work is already underway at a number of substation sites across the remaining projects as we ramp up for full delivery. And innovation, whether through new technologies or use of AI is enabling delivery of these projects on the ground. Our approach to substation delivery is leading the way with modular substations enabling small-scale grid connections at speed. These offer a standardized and repeatable design built in safer and cleaner conditions, reducing costs and disruption for local communities. Likewise, in the Western Isles, we're using drones to install conductors on overhead lines, a U.K. first, which is minimizing our impact on sensitive landscapes while speeding up project delivery. Modular substations, drone technology, autonomous robotics, 24-hour monitoring of critical assets without human intervention. These are just a few examples of how technology and innovation are enabling delivery of our investment plan. Ofgem deserves credit for enabling a regime that has led to construction of these 11 mega projects. Their progressive approach to anticipated investments has helped us unlock preconstruction and early construction funding. This has enabled us to contract early and strategically with specialist supply chain partners who share our relentless focus on delivery. Mechanisms such as real price effects and price adjustments within the regulatory framework, all support investment confidence and keep costs down over the longer term. All of the strategic equipment required to deliver this transmission investment has been secured, and the names on this slide underline that we have assembled a world-class experienced global supply chain combined with a strong local presence to deliver value in the communities we operate. This is backed by a structured relationship management program using multiparty steering groups to ensure coordination between all parts of the supply chain across the entire construction program. And our internal capability is significantly enhanced with a considerable increase in our own staffing numbers, increasing more than 20% in this past year and fivefold in the last 5 years. With funding in place, regulatory approvals secured, supply chain contracted, headcount increased, consenting progressing well and construction in train, the grid reinforcement that forms the backbone of our GBP 33 billion investment plan is gathering pace. Our Distribution business continues to make strong progress against its RIIO-ED2 plan. At the same time, we are laying the foundations for ED3 from where we expect to deliver significant investments over the 5 years from 2028 to enable electrification of the economy. This year saw 5 new subsea cables completed, part of our over GBP 1 billion of existing capital delivery agreements across our license areas. Ofgem is assessing nearly GBP 1 billion of additional uncertainty mechanism requests to support network development through the remainder of ED2 and early ED3 mobilization. Overall customer satisfaction scores are also increasing with improvements also seen in connections, but extreme storms in the north of Scotland have affected customer interruptions and customer minutes loss scores. The business is seeing a ramp-up in delivery, which, when combined with the need for strategic investments for an electrified economy, gives us further confidence in its growth trajectory. We truly have a multi-decade growth opportunity ahead of us in distribution. In preparation for this and the upcoming price control, we are taking cost out of the business and putting it into the systems, tools and processes needed to excel over the long term. The system operator is making good headway on the regional strategic energy plans needed to underpin the timing and scale of our own local network investment plans. We have seen connections demand more than double since 2024. In Scotland, this is connecting distributed renewables, while in England, our patch covers one of the most data center heavy areas in Europe. The regulator is looking to carry the strategic approach seen in transmission regulation into distribution, but we are not expecting a big bang of investment like that business. Distribution will be a transformational program to electrify the economy over many decades using an optimal combination of network build and smarter, more dynamic flexibility to deliver future growth and ED3 will be a pivotal step towards delivering a local network for the future. Renewables and systems are the bedrock of future global energy, and we have a world-class business with premium assets and projects that will generate significant long-term value. This year, we have made progress on our major projects, both onshore and offshore. In England, a 150-megawatt Ferrybridge battery entered commercial operations and battery installation is also continuing well at the 320-megawatt Monk Fryston and 150-megawatt Fidlers Ferry projects. In Scotland, we have consent for Berwick Bank and a 20-year CfD for Phase B of the project at a competitive price. The project is now progressing towards a final investment decision, which is anticipated in 2027, and we expect to bid the remaining phases into the accelerated AR8 later this year. In addition, our pumped storage hydro scheme at Corry Glass will find out soon whether it has qualified to the next phase of the government's cap and floor scheme, whilst in Ireland, ARCO is awaiting a consent decision expected later this year. And our beachheads in international markets offer optionality, which could, on a measured basis, add to growth over the long term. Taken together, we are building out our premium pipeline in a disciplined manner that has served us so well in the past by prioritizing value over volume. We continue to build momentum at Dogger Bank A with turbine installation now complete and commissioning expected to be substantially complete by the end of 2026. Turbine installation and commissioning is progressing strongly at Dogger Bank B with 20 turbines currently installed and first power achieved in short order. The run rate of installations has far exceeded that achieved previously, thanks to a number of improvements based on learnings from the initial stage. At Dogger Bank C, installation of transition pieces was completed in November 2025, marking successful foundation installation across all 3 phases. When fully complete, this project will produce 6% of the U.K. current demand, making a huge impact on homegrown energy production. And technology is also having a huge impact on the Renewables business. We've been using AI for a number of years now to monitor salmon through our hydro schemes and seabird activity across our remote sites. That data is being put to good use, supporting faster, more evidence-based permitting and planning for future developments. Commercial operations at our first battery in Ferrybridge was met with the first use of our AI-led asset optimization platform. A similar system has been used by hydro for a number of years now to optimize generation dispatch decisions using AI and machine learning to efficiently react to predictive asset conditions and weather and market price changes. And the benefits are being seen in the system, in the operational performance and availability of our assets. This is not future potential, but delivery today. Our Thermal business is fully focused on delivering the essential flexibility that renewables-led systems rely upon. We have the U.K. and Ireland's leading conventional thermal fleet alongside a portfolio of options that can provide firm flexible power at different levels of carbon abatement. As the system changes, governments are increasingly valuing capacity as much as electricity. And whilst we were unable to secure contracts for life extensions through the U.K. capacity mechanism this year, over the past few years, it has created a consistent and reliable revenue stream for these assets. In Ireland, we received a 5-year capacity mechanism agreement for Great Island. Construction is progressing well at both the Tarbert and Platin sites with full commercial operations expected in 2027 and 2028, respectively. Across both core markets, we continue to retain and selectively develop additional options for low-carbon power stations and storage needed for the future system. Taken together, we have high-quality assets, providing much needed capacity for our markets and balance for our business alongside a development pipeline fit for a range of future energy scenarios. Electricity demand is expected to increase under all those future energy scenarios and data centers will be a driving part of that story. SSE has strategic optionality to support that growth. The U.K. is in the early stages of the data center boom and with the government designating data center growth as a strategic national priority and streamlining the planning and construction process, we expect this will be a trend that is set to accelerate through the rest of the decade. We are already supplying over 80% of Irish data center power demand, creating strong partnerships and relationships in the process. Our customers business is also creating early-stage value through private electricity networks with around 1.6 gigawatts of new network connections under agreement and a pipeline of further opportunities to come. I mentioned earlier that our southern distribution license area is at the center of U.K. data center demand, and we have over 2 gigawatts of contracted applications in that license area alone. Our geographical advantage does not stop there with strategic land and generation options in emerging growth zones such as Ferrybridge and Keadby as well as new build route-to-market opportunities in Ireland. This is a great growth opportunity, but it is not incorporated in our targets. With our significant experience and key value proposition for hyperscalers, we have the platform to unlock this growth potential over the decade ahead. So to summarize, these really are exciting times for SSE and those around us. A strategic focus on networks, renewables and flexibility aligns SSE with the electrification trends dominating our core markets. At the same time, the breadth of our options and capability across the value chain gives us growth options wherever future value emerges. Our business mix and capital strength mean we offer a compelling combination of resilience and value for today and structural growth for tomorrow. But the thing that really sets us apart is our GBP 33 billion investment plan and the way it faces into the dominant and important theme of national energy security. Through it, we are harnessing a massive growth opportunity and making meaningful difference to society as we help deliver a homegrown energy system that offers lower, more stable bills over the years ahead. Most importantly, we have real momentum behind our ambition. Delivery is happening right across the business as we turn plans on paper into infrastructure on the ground and at sea. We are meeting our operational and financial objectives today and fully committing to the ambitious growth targets we have ahead. Barry and I would now be very happy to take any questions.

[Operator Instructions] And our first question today comes from the line of Mark Freshney from UBS.

Just 2 brief questions. Firstly, on the planned auction for legacy renewable assets next year. I mean, clearly, there's the stick of an 80% marginal tax rate at high levels. How will you be trying to shape the regulation around that? Because the worst thing would be if the auction clears at a low price? And how will you particularly protect the value of some of the Scottish hydro that captures super peak prices? And just secondly, on the impairments of wind farms, onshore wind farms under construction due to the delayed grid connection. Can you talk around that and explain why these impairments are so big? Is it because of higher rates? Or is it because of just the length of delay in getting the grid connection for these 2 assets, which are being impaired?

Thank you, Mark. I'll take the first question, maybe leave Barry for the second question. Look, I mean, firstly, I mean energy transition has been ongoing for, what, 15 years. And there have been multiple consultations and multiple changes to mechanisms to enable markets to evolve in the correct manner. This may be the next stage of that. And of course, we always talk to governments constructively when they're consulting on new ideas. Historically, we have talked about moving rocks to CfDs and the possible advantages that could give to all stakeholders, including critically consumers here. And of course, you'd expect us to be very well engaged on this. Just in terms of the specifics on the hydro, just remember, hydros are coming off ROC at the end of this financial year. So that might be a slight nuance in your question. Just one other point I'd make as well, if I may. There's obviously a lot of talk about gas price setting power price and trying to decouple that. What we see in the market is that, that effect is reducing materially over time. So we think gas prices set power prices around 60% of the time, and we see that falling quite dramatically over the next few years as companies like us bring on major renewables infrastructure like Dogger Bank. So effectively, the market is actually delivering that objective just in terms of following the current mechanisms and the current policy evolution. And we'd always be slightly cautious to government saying, do you change your metal with market mechanisms that can create effects that possibly you didn't expect when the market is already delivering some of those outcomes.

And look, in relation to the impairment, these are 2 onshore wind farms in Scotland that had A or 5 CfDs when they took FID and ultimately, just the grid connection dates pushed out on these. And I think, look, reality Mark, many developers in the U.K. have seen this across onshore wind, solar and battery. And look, for us, the impairment really relates to the time, obviously, the project is pushed out and there's also a higher CapEx just while the project gets pushed out like that. It is isolated to these 2 projects for us in terms of our portfolio. And ultimately, look, they are AR, 15-year government-backed contracts including with CPIs are still attractive projects once we get to operations.

And our next question comes from the line of Pavan Mahbuban from JPMorgan.

I'll start with where you sort of rounded off, Martin, on the data center platform and I appreciate you're well positioned in that area. Can you maybe provide some color as to whether you're having any constructive dialogue already with partners? Or are you just indicating that you're just well positioned in terms of those opportunities? That's question one. My second question is on ED3. It would be great to hear a summary of your thoughts of the recent SSMD and what you thought was good and where you think there's areas for further dialogue with Ofgem. And then if I can sneak a quick third one in for you, Barry, when you sold the SSE Energy customer business to OVO, I think there was some financing instruments that were still outstanding. If the E.ON OVO transaction does close, is there any financial impact we should be thinking about for SSE?

So first, on the data center point. you remember, Pavan that 6 months ago, we were being quite cautious about the data center trends and saying to investors be very careful about extrapolating something from the U.S. to our home markets. So maybe over the next 10 years, we see 160 terawatt hours of additional demand for the EU and maybe 35 terawatt hours for the U.K. And so it's important to start there. If that is too cautious, if we've underplayed that, then from a macro perspective, obviously, you'd expect very constructive effects for a lot of our businesses. You'd expect a higher demand to be very good for renewables in terms of building out market solutions, but high demand also for our networks businesses and indeed, distribution given its location, which we obviously talked about in the earnings presentation. There are other obvious effects as well. We have sites that are well positioned in our Thermal business and our Customers' business has a good suite of offerings that would be, we think, very much welcomed by hyperscalers. So on all of those macro conditions, we're well placed. Then, of course, just to answer the more micro elements of your question, because Ireland has been slightly ahead in this and because of our electricity brand and some of the work our Renewables business have been doing, we are well linked in and have very good relationships with the sort of companies you might expect to be investing back into GB, and we'd expect that to be able to realize finally as we go through some of those relationships in the future as this trend is responded to. Then for ED3 and the SSMD, I mean the first thing I'd say is the investment case is very clear. A year ago, we would have been referring you to the SSMC and the line in there, particularly that Ofgem said the industry needs to be ready to accommodate rapid electrification. We have also been referring to you to the NIC report and the doubling of demand. What we're saying to you this morning is actually on the ground, we are seeing that. We are seeing a big uptick in EVs usage. We are seeing increased demand connections come through, and we're seeing increased demand for data center connections, particularly again in our southern license area. And therefore, we think the strategic case for an ED3 settlement, which recognizes the growth prospects to the economy of electrifying at a distribution level, we think, is very compelling. Of course, we recognize that Ofgem needs to get the balance right. But we'd also point to one thing maybe that came out yesterday with the price cap that talks about an increase in over GBP 200 for domestic energy users. I think gas prices were up 24% for domestic users, but electricity prices were only up 5%. And we see that as one of the good features of electrification that U.K. consumers will be less exposed to prices if we can go down this route. And clearly, distribution build-out will be an important part of that.

In terms of the loan note, yes, so at the end of March, our loan note with OVO was just over GBP 220 million. And once their sale of the Retail business completes, that will trigger the automatic repayment of that loan note in full. And look, that is part of our GBP 2 billion disposal program. And if you remember back in November, we said over 25% of that GBP 2 billion will come from noncore assets towards -- in the earlier part of the plan. So clearly, the OVO loan note will be the first part of that. We also have our last remaining stake in a waste-to-energy plant in Slough. And again, that's noncore. So that will happen probably during 2027 as well. So yes, the OVO loan note can be the first piece of that disposal program.

Your next question comes from the line of Dominic Nash from Barclays.

It's Dominic here. A couple of questions from me, please. Firstly, on capacity markets. We had a capacity auction T4 early this year. I think it was notable for a couple of things. One, it came in quite a low number, GBP 27. And when you dug into it, I think there was a significant increase in batteries and demand side management potential. And secondly, I think there's a big decline in the gigawatts that your CCGTs secured. So with that context, the questions I've got here are, firstly, could you just give us sort of like your view as to whether the capacity market is going to structurally change maybe into a lower for longer with the batteries sort of coming in or whether you think that the consultation coming through may move it up? And secondly, on your CCGTs, what do you currently see is going to happen if they do not win capacity market auctions as we get into sort of the early 2030s? Are they going to be betting for closed? Or do you think you're going to be refurbishing them? And interestingly, I think answer to your question earlier to Pavan, I think you talked about data centers. You talked about it being positive for renewables and networks. Is there going to be a potential role for your CCGTs there?

Yes. Dominic, quite a lot there. I mean, so firstly, thank you for helping with the Pavan question. I should have mentioned, of course, flexibility is going to play a part. So thank you for helping me fill that gap that I left there. Look, just on the capacity mechanism, it's been a really successful instrument, clearly. It has enabled the market to navigate quite big energy transitional forces whilst retaining security of supply for all. We expect the capacity mechanism to play an important part going forward. And you referenced the consultation that the government is currently leading. And of course, like all consultations with government, we'll be very actively involved in that and trying to make sure that the good feature of the capacity mechanism in terms of the security of supply it offers to customers continues. You're right for the T-4, we didn't take contracts on Peterhead or Medway. Of course, there is a T-1. So we will see how that progresses over the next few years. And I guess there's a kind of future market scenario point here. So what do we know is going to happen? We know demand is going to increase, but none of us know by quite how much. We know that some legacy nuclear are going to close. We know that interconnector flows will be slightly complicated by the fact that other companies will be going through their own energy transitions. And we know also that the 37 gigawatts of CCGTs currently on the system are aging. And so it would feel to me that a market needs to make sure that it can move forward in a very secure, stable way against all of those factors. And therefore, I do see a role for CCGTs going into the 2030s.

Your next question today comes from the line of Deepa Venkateswaran from Bernstein.

I have 2 as well. Just starting with ED. I was picking up that you're still doing this transformation in your distribution division, which I think is still underway. So just wanted to see, it's not obviously an area where you're spending as much relatively higher CapEx. I was just wondering what that transformation is? And then any thoughts on Ofgem stance on ED where they're saying that heat pump penetration is probably maybe the biggest uncertainty, and they believe that's going slower. I know you mentioned that in your region, data centers and EV pickup is quite high, but often seems to suggest that heat pump is a major driver. So just any thoughts on heat pump? And secondly, more a clarification on the AI data center opportunity. Martin, are you saying that this is not something in the plan and this could be something for the future, and therefore, it's an optionality and upside. And there isn't anything too material in the current CapEx plans in the transmission or distribution on CapEx required for data centers and likewise, anything in your FlexGen guidance, et cetera?

Thanks, Deepa. Maybe I'll take the last question, Barry. Just on the first 2. So this, we've got a first-class management team, and they have been undergoing a big change program in that division. What we were trying to highlight during our earnings presentation was the fact that we think they're making really good progress, so we see our customer satisfaction scores have increased, we hav edeployed CapEx in some pretty complicated areas, particularly the subsea cable links we referenced. We have enjoyed winning an incentive under the DSO. And we also think some of our customer vulnerability programs have also been very good, including the issuance of 20,000 home batteries to vulnerable customers. On top of that, we've got the -- a transformation program where we're investing in systems, which we think will realize real benefits in terms of quality, efficiency, productivity. So we think we're in a much improved place and I back that management team to deliver really, really good upside, which is really important given the demand trends we have already referenced that are going on. Then in terms of your more macro question on heat pumps, look, I mean, predictions about EVs, heat pumps, data centers move around all the time. What we know is demand overall is constructive. What we also know it is likely demand growth is to be pretty nonlinear, difficult to predict. And we would argue that a system needs to be resilient against any future configuration that comes through. And I don't think in the medium term, our view of heat pump deployment has actually really changed that much. It might just be going slower to the front end.

Yes. Look, in terms of what's in the plan for data centers, there's nothing in the financial plan for data centers in the plan of 2030. Clearly, Martin outlined earlier on with lots of conversations going on. And obviously, we have lots of opportunities right across the portfolio. So anything that will be more upside towards the end of the plan if start to come through, but more likely into the early 2030s.

Your next question comes from the line of James Brand from Deutsche Bank.

I had 2 questions. The first is on wholesale CfDs. It seems like that could be quite an attractive opportunity for you if the price was set at a reasonable level and the duration of the CfDs was reasonably long. Could you tell us kind of any initial -- appreciate there's not that much detail that's been set out yet, but any initial thoughts on wholesale CfDs and whether you think that might be an interesting avenue for you? That's the first question. And then the second question is on -- I appreciate kind of electricity demand and data center has been touched upon a bit already, but I was quite struck by National Grid at their results they said that they had a central case for a demand increase where they expected 19 gigawatts of demand increase in just the next 5 years, of which they thought 10 gigawatts would be data centers, which is obviously that's an absolutely kind of huge number relative to peak demand. And obviously, you kind of touched upon the capacity market earlier. It seems very, very different from what's factored into the capacity market assumptions. So I was wondering, I know you probably don't want to be exactly drawn on a precise demand number, but is something like that kind of credible in your view? In case you have to say yes because you don't say National Grid is totally not credible. Just some thoughts on that because it seems so dramatic that it could be quite transformative into the outlook if that actually materialize, what would it mean for you?

Yes. Thanks, James. I mean just on the wholesale CfDs, I think it's more to refer you to the answer I gave earlier. Obviously, it's an idea that's been positioned by the government. It's being consulted on. And of course, you'd expect us to take an active interest in that consultation and we'll see where that leads. Just in terms of demand, again, I mean, I think the National Grid number you referenced, I think, sounds similar to NIO number I've heard. So those are the kind of numbers that are kicking around the industry. Look, we wouldn't put a number on it ourselves. But again, I'll just refer you back to the fact that, a, we're seeing demand shifting positively for electricity. And secondly, I think it's very, very difficult for anybody, no matter what their insight to completely accurately predict how demand will shape itself over the next 3 to 5 years, given some of the big trends that are going on and some of the accelerants that are affecting those trends, including the fact that global gas prices are so high, global oil prices, diesel prices are so high, which is maybe accelerating the trend for EV take-up. So we'd be quite cautious about that, but we'd be advising policymakers that it is incredibly important to have resilient, stable frameworks and systems that can respond to any of the future energy scenario outcomes that emerge.

Your next question today comes from the line of Harry Wyburd from BNP Paribas.

So 2. The first one is going to be impossible to answer, but the purpose of it is just to get a bit of color on how you think about it. So obviously, we've been following politics very closely. And if you read carefully into what Andy Bernan has been saying recently, the main word that crops up is control rather than perhaps nationalization, which people are worried about in the past. So very cognizant that it's very hard for you to speak and answer on this. But is there any way that you think the government could get more control over utilities like SSE that would be constructive? Or that you could work with? Or have you done any thinking internally about how that could work in practice? Or do you have any thoughts that you want to share on U.K. political sort of permutations from here? So that's the first one. The second one is more technical, more Barry's question. So I think on Slide 17, I think your tax rate guidance looks like it's gone down. I think at the half year, you were guiding to double-digit effective tax rate over the plan, and now it's mid to high. So has there been a mix shift in the 2030 guidance that we should be aware of?

Look, I mean, to answer the politics question, I mean, the first thing to say is there's obviously good consensus with the government for energy transition. It was 1 of the 5 missions they came into power and advocating for. And look, whether it's driven by net zero dynamics or right now probably by energy security and energy affordability dynamics, we see those as remaining very strong. And I would also say that what they have done and indeed, previous government stretching back over probably 1.5 decades has delivered a market which is now delivering prices 30% below where they would have been if we hadn't started this transition. Then I'd also say, how has that happened? That has happened because the mechanisms that have driven that, whether it's the CfD or indeed the capacity mechanism to ensure security of supply underneath it have proved to be very robust mechanisms, which are successful in attracting private capital and alongside a strategic regulatory approach, particularly in the last few years, which has driven networks growth, particularly transmission, that has enabled us as an industry and us as a company to deliver our share of that. Then I'd just quickly point you to -- and I know you know this, but just to remind, what does the government actually achieved in the last couple of years. If you look at its Clean Power 30 plan and then you kind of go through some of the targets on that, for offshore wind, the AR7 results, I thought was very strong, the 8.2 gigawatts. Clearly, they've moved on planning. They've looked to resource consenting units. They've moved on SMRs, CCS. And also, they have obviously given Ofgem a direction on the capital floor for long-duration storage. I guess what I'm saying is the government has a record of delivering through energy transition and trying to maintain systems and remuneration mechanisms that continue to attract private capital because the scale and the investment needed is obviously so significant. And obviously, we have been pleased to be part of that in terms of our share of that infrastructure investment and delivering to consumers.

Look, on the tax rate, no, there's no change to the average tax rate on the new plan for the 5 years at 2030. We always said we are in the mid- to high single digits, which clearly expect with a big ramp-up in CapEx as you go out. That's clearly slightly lower than the old plan, which went out to '27. But clearly, we have a much higher CapEx program in the updated plan we put out in November. So there's no change to that.

Your next question today comes from the line of Peter Bisztyga from Bank of America.

So a couple of questions from me, [indiscernible].

I am sorry, Peter. I am sorry we're really struggling to hear your question. I'm so sorry.

Peter has disconnected. I will now go the next question. And your next question today comes from the line of Ahmed Bilal Farman from Jefferies.

First, a few quick clarification questions. Firstly, can I just ask more about the FlexGen outlook for the year ahead? Obviously, since you have given us guidance, sort of the geopolitical environment, volatility, gas prices are much higher. And maybe you can help us understand how should we think about this environment sort of feeding into the outlook for the gas plants? Obviously, you're maintaining the guidance for thermal, and I'm trying to understand, is that sort of conservative or there's sort of a better macro environment behind that? So that's the first question. Secondly, on EV3, can I specifically get sort of interested to get your thoughts on cash advancing measures. What's your take on that? There still seems to be an ongoing debate about depreciation life assumption. Is that sort of a critical part? Those are my 2 questions.

Okay. I'll take the question and give the few questions. Barry, if that's okay, I would hope. Look, obviously, thermal, it's a Flex business, which responds well to spark spread volatility. And there have been -- over the last 5 years, obviously, there have been years when that volatility has led to quite high remuneration and other years where actually things have been actually pretty benign. The way we probably think about it internally is in the very volatile spark years, of course, we'd expect thermal to do better, but we'd probably expect lower renewable price capture, particularly in the wind business and maybe a little bit better in hydro. So we kind of see it as that kind of hedge. Equally, in a kind of low spark spread year, that would imply to me quite high renewables and maybe high renewable yields kind of net off kind of thermal. So we kind of see it as a balanced risk-managed business. Of course, there are scenarios where those correlations also slightly. But right now, volatility is definitely in the gas market rather than necessarily the spark spread.

Thanks for the question. Look, on EV3, look, it's still obviously very early in the process. And I think Martin said earlier on, a lot of the big decisions have yet to be made to be paid. In terms of the cash measures you spoke about, look, obviously, they're looking at moving the cost of debt to the semi-nominal, which is in line with T3, which -- that's fine. I think that makes sense to us. Things like asset lives, et cetera, that's all still part of the wider discussion. I'm not going to get drawn into specifics of that today. Ultimately, for us, we look at the package and around ensuring that it's investable and financeable for the strong growth that's coming there, but it's probably still a bit early in the process to get into the finer detail.

Your next question today comes from the line of Jenny Ping from Citi.

A couple of questions from me, please. Just firstly, back to the point around politics and affordability. Obviously, this is an area where the government is looking to address. Can you just sort of talk us around the areas where you think there are some low-hanging fruits for governments to effectively address some of the affordability and the bad debt situation. Obviously, bad debt doesn't directly affect you, but it is a burden both economically and politically. So that would be my first question. Secondly, slightly long term, Dom earlier touched on the batteries, the volume of batteries that's coming through. I was just wondering what your thoughts are on that battery impact in terms of slightly medium, long-term impact on your CCGT fleet in terms of shaving off some of the peaks and troughs and therefore, its ability to capture some of the benefits. And I guess that goes also for the pump storage asset. And then very lastly, back to Slide 17 in terms of guidance. Harry already asked about tax, so I asked around the interest. I think that you only talked to guidance of 5.5% on new issuance, but I presume the size of the capitalized interest will also go up with capital investments going forward. So can you give us a feel of what the progression looks like for '27 and '30 versus that 212 reported?

Look, on the first point, I mean, obviously, matter for government, but you have heard us welcome the move from the ROC, the GBP 150 of ROC from bills to taxpayer back in November. There may be a little bit more scope on levies moving, but that is obviously a decision for the government. I guess we are focused on our part of what we can do. That is making sure that our fleet is working optimally and efficiently. It is making sure our projects are delivering, including Dogger Bank, so we can put that low marginal cost energy onto the system. And of course, it's also focused on what we referenced earlier, things like transmission operations, which have saved GBP 300 million of consumer cost through avoiding curtailment costs. So we're very focused on that as a business. Then in terms of your battery, I think it's a battery versus CCGT question. So we're invested in batteries because they provide a certain optionality or market dynamic that enables a better risk management of our overall portfolio. We don't see it as batteries or CCGTs just because of the nature of the flexibility they offer and the services they offer. So I wouldn't see that necessarily as competing against the possibilities for CCGTs going forward. I think it just is an additive option onto a system which will have more intermittency going forward. And I'd point you to various things. So for gas turbines, I mean, clearly, a lot of their value right now is in a balancing mechanism responding to grid instruction on ancillary services. And I think they offer a very different market profile to the system operator than batteries.

Look, in terms of capitalized interest, so capitalized interest went up in FY '26 by about GBP 80 million, which we're capitalizing interest at around just north of 4%, which you'd expect given we had a record CapEx year. And look, in line with our standard accounting policy, we'll expect capitalized interest to go up as interest cost goes up and as CapEx goes up across the plan. So it will go up accordingly in line with that CapEx profile.

Your next question today comes from the line of Ajay Patel from Goldman Sachs.

Look, I wanted to just maybe focus on renewables. So very successful in the offshore auction in January, securing 1.4 gigawatts. You potentially have 2.7 that could go into the next auction in December. And you look at the CapEx allocated out to 2013, it's 4 billion in size. And I'm just thinking how do we think about capital allocation in renewables? Is it very much that you keep sort of guardrails around the amount of capital deployed in that direction and that we should maybe see higher asset sell-downs if you're successful in future auctions and through quite a decent size of auction wins? Or do we think that you'd be willing to sort of overshoot those sensors if the right opportunities arise? And I guess maybe the other thing with that is how do you assess risk in this situation or cost of capital? And if you think that you're quite fractured in regards to government and your opposition and to what degree you could have quite sizable swings in energy policy in regards to renewables if you take some more extreme positions, how do you sort of reflect that in the way that you look at risk return? Do you look for better, higher returns as a result and therefore, you in your cost of capital? Or you have a lot of confidence in the contracts and the way that they're set to give you protections regardless of any changes that could happen over the next 5 years?

Yes. Look, happy to go first. So look, in terms of renewables, look, we have a rich pipeline of opportunities in renewables, and we've always felt that we have a very clear investment criteria. We have very clear and strict hurdle rates, which the projects have to meet before we take them through. And that's back to Martin's point earlier about value over volume. And look, when we were doing the plan back in November, we were looking at that pipeline and the opportunities, and that was all part of the stress testing that we did at the time. So that is all catered for in the plan. A lot of the big mega projects you're speaking about, whether it's Berwick Bank or Corey Glass or some of those other big projects that are coming through. In reality, we won't own 100% of those projects as we get through FID. And the timing and the phasing of those projects coming through as well also has to be factored in. And we also -- what we always look at is project finance debt as well for those big offshore projects. So that is all about from the plan. Any of those really strong projects that meet our hurdle rates will absolutely be taken through. Look, in terms of how we price in risk, we have very clear hurdle rates that are publicized. So for offshore wind, greater than 12% equity returns. But also on top of that, you also contingencies, risk costs, et cetera, that we build in. And that's always been part of what we've done, whether it's back in Dogger Bank or the Berwick Bank auction as well. So that all gets factored into the consideration at the time when we're making the bid.

And maybe just -- if I could just say one quick thing on -- I think you said sizable swings in renewable policy. I mean, look, we said this before, but just to reiterate, given what I outlined earlier, the inevitable increase in demand, the inevitable loss of some legacy generation, clearly, the U.K. is going to have to build more wholesale generation. And we consistently have said because we believe it to be true that renewables are cheaper. They're also available. We can get turbines. That is not necessarily true on mass for CCGTs, for example, and they are quicker to deploy. And that's obviously a really important fact for any political leader or policymaker to consider.

Your next question comes from the line of Charles Swabey from HSBC.

I have 2 questions. One on the balance sheet. You have previously spoken about some headroom later in the plan as more contracted and regulated earnings come through. Just wondering if this view has changed for better or worse in the last 6 months since you put it all together given the final determinations, capacity mark auctions and the upward move in rates. It's the first question. And the second one, just a smaller one on renewables. The return expectations for the other renewable assets such as batteries looks like you've lowered the spread to WACC range there. Any color on this would be useful -- is that due to competitive pressures or anything would be helpful.

Yes. Thanks for that. Look, on the second question, no, there's been absolutely no change on lowering the spread of that, that's absolutely as it was in November. So absolutely no change there. Look, in terms of balance sheet headroom, absolutely nothing has changed in terms of balance sheet headroom. We flagged in November. We sized the plan to be below 4.5x net debt to EBITDA throughout the plan. And we said then we can still go above that slightly and still be within our existing credit rating metrics. So absolutely, no change to that, and that was all part of the stress testing we did at the time. And then secondly, I'd say, since we put the plan out, the rating agencies have all supported that plan. We've seen Moody's reduced FFO to net debt from 20% to 18%, which was in line with our expectations. And S&P have also flagged to looking at the metrics again as we start to deliver out the regulated earnings and the regulated growth. So absolutely nothing has changed since November.

We will now take our final question for today. And the final question comes from the line of Peter Bisztyga from Bank of America.

I'm going to try again. Can you hear me this time? Excellent. Okay. So just 2 kind of remaining questions from my side. One, just on the time line for your offshore wind projects. So I was just wondering if you could else state a bit on Berwick Bank in terms of when you expect to take FID and how long that might take to build out and whether there's any kind of grid connection issue there that we should think about? And also on Dogger Bank, you're talking about the accelerated sort of turbine installation, but do you still expect there to be 12 months between the delivery of the different phases there. So that's kind of my first question. Then second one, much more sort of general. There continues to be a lot of cost inflation in the value chain, especially for raw materials. We've already seen the costs for your RIIO-T3 program go up from inflation. And I'm just wondering whether you see upward pressure on your current 27 billion network CapEx budget and basically how you're managing that and how you're thinking about that.

Okay. So I'll leave the second question, Peter. Sorry about early, by the way, to Barry. Just on the first question, I think we said it in the presentation, FID on Berwick Bank should be some point next year and then obviously build out about 4 years from there. And then for Dogger Bank, there is no change from where we were 6 months ago. So we're talking about COD on Dogger Bank A Q1 '27 and Dogger Bank B at the end of summer '27.

Yes. Peter, I think your question was on cost inflation in the transmission projects, I think you said. So look, 5 of them were already in construction. So clearly, for those 5, obviously, we've already locked down the contracts. And of course, there is price adjustment mechanism in -- as part of that regime where you can reopen for certain inflationary costs. And for the other 6 projects, well, we haven't taken them to FID yet, and we won't go for the project assessment in those projects until we have final contracts, we know actually where the costs have landed. So again, we're protected from that perspective. And again, of course, they would also have usual price adjustment mechanisms as well. So no concerns there.

Okay. But sorry, is that sort of -- have you baked in some kind of contingency for inflation into your sort of overall 22 billion budget? Or how is that?

Yes, that would all be part of the analysis and the scenario testing we did back in November time, absolutely.

Thank you, Peter. Look, thanks for your questions, and thanks to you for your time today as well. This morning underlines just how excited we are about the momentum we have behind our plans and how resilient we are as a business to macro events in the world around us. We look forward to seeing many of you in the coming days. Thank you for today.