Drax Group plc

Thank you and good morning, everyone. Welcome to our 2023 full year results presentation. I'm going to start on page three. So you're all familiar with our purpose and our ambition. And I want to start with that, as we always do, as it fundamentally guides everything that we do. We have a business model that aligns shareholder returns with positive outcomes for nature, the climate, and people. So today we're taking a slightly different approach to our presentation. As always, we will review our performance and our strategy. And in addition, today we'll spend a bit more time reminding you of the fundamental strengths of our business, its critical role in the UK power system, and our ability to generate long-term returns for shareholders. I will also underline our commitment to running our business safely, sustainably, and compliantly. Turning to page four. We delivered a strong financial performance in 2023 with a strengthened balance sheet, additional returns to shareholders and the continued development of our strategy. We're delivering for multiple stakeholders. We provided 8% of the UK's renewable power and we play a key role in supporting the UK power system. And we expect that to be true for a long time. We have a strong business today with long-term cash flows underpinning the balance sheet and dividend, as well as opportunities for growth that are aligned with net zero. I want to spend a little bit of time talking about what our business is today. In the UK, we have an important flex-gen business, which is at the center of the UK power system, and which will become more important as the country transitions to a greater renewable power system. The first part of that business is our non-biomass flex-gen and energy supply portfolio. Drax Energy Solutions, Kroken, our hydro business, and ultimately our OCGTs. We're targeting recurring EBITDA of greater than 27 million pounds per annum post-2027 with limited commodity exposure and upside to volatility and higher power prices. The second part of our business is pellet production. While 2023 was a challenging year, we're bullish long-term on the opportunities in that market and are targeting greater than 250 million of EBITDA around and post-2027 for that part of our business as well. And combined, this represents over 500 million pounds of non-biomass generation, recurring earnings, and cash flows post-2027. And of course, in addition to that, we have the biomass power generation at Drax power station, which we expect to generate significant cash flows from contracted positions over the next three years, and then remain critical to the UK system for many years thereafter with the bridging mechanism in place and ultimately with BEX. These activities provide a strong foundation for our balance sheet and dividend growth, both now and in the longterm. And because of this strength during the year, we expect to repay or refinance our 2025 tip maturities during 2024. Flexible generation, biomass, and BECCS form the core of our strategy. We have opportunities to invest over 4 billion pounds by 2030 and to do more beyond that. And our ambition remains for over 20 million tons of carbon removals globally And we continue to target BEX operations in both the UK and the US by 2030. Let me just point out that this is an update to the phasing of our investment program relative to what we set out at last year's Capital Markets Day. So turning to page five, let me walk you through this business which talks about our business today. So first, we have flexible generation and energy supply. Crooken, hydro, ultimately are open cycles. and our energy supply business, all independent of biomass and central to helping manage the UK power system as renewables grow. I want to call out our energy solutions business, which is founded on Drax Energy Solutions, a leading renewable supply company to large industrial and commercial customers, but also includes our renewables and commodities business that was acquired when we acquired Opus Energy in 2016, as well as our growing electrical vehicle charging business. And again, we're targeting post-2027 recurring EBITDA of greater than 250 million from that part of our business. That part of our business has, again, limited commodity exposure and upside to volatility and higher power prices. So the second part of our business is our pellet production. We have greater than 5 million tons of capacity. We operate through four major ports. and we have greater than 17 million tons of third-party contracts in place today. This business gives us exposure to the growing opportunities in sustainable aviation fuels, or SAF, as well as opportunities in BECCS, and both of those segments we expect to have significant need for sustainable wood pellets. This business is also a critical part of our integrated supply chain, which has proved its worth repeatedly over the last several years given the volatility in the market. Third part of our business is our biomass generation or the Drax power station. Again, it's got strong forward power hedges that support firm cash flows. And we expect to see additional value from currently unhedged power generation between 2024 and 2026. And beyond that, significant long-term value once we have the bridging mechanism and then BECCS in place. So combined with our FlexGen business, this is four gigawatts of flexible generation. We are the UK's largest source of flexible generation and 24 seven renewables. And we produce over 20% of the UK's renewable dispatchable power. And again, we have 4 billion pounds of investment options, which I'll talk about more in a minute. And all of this is underpinned by a strong balance sheet, which is strengthening, which Andy will describe. and a dividend that has grown at 11% over the last seven years. So what are the attributes of our flexible generation business? I'm on page six now. So if you look at the map on the left, it's a geographically spread collection of flexible generation assets with pump storage and hydro in Scotland, and ultimately the open cycles across the middle of the country. As you can see in the chart on the top right, today we're delivering more than 300 million pounds. I should say in 2023, we delivered more than 300 million pounds of EBITDA. And Andy will walk you through the details of that. And actually almost if you include the backcasting that we have done, what we expect the open cycles would have done if they had been operating in 2023, the number is almost 400 million. Now, 2023 was a particularly strong year. where we benefited from forward sales of peak off-peak spreads on the pump storage business. And we don't expect that to recur every year. But the development of earnings, as you can see on the chart on the top right, reflects growing system needs associated with system support services. And we've talked a lot about that in the past. And we expect that to be an important feature of this business for the near and the long term. And again, if you look at the earnings over the last three years, and you also include the backcasting of the open cycles, That flex-gen business would have delivered over 800 million of EBITDA over the course of the last three years. It's risen dramatically with power prices, and we expect that to normalize in line with our ambition of greater than 250 million pounds per year. Now, we're going to look at the bottom right-hand side of that chart. The main point you want to make here is we fundamentally deliver value through system support. which is about 60% of that pie, sort of the dark blue in the lower right, right? And then only 15%, the sort of the light blue in the upper right, is delivered through power prices. So fundamentally not exposed to commodity prices, right? This makes us a unique player in the system, critical for UK energy security, and all of this, again, outside of biomass and the associated subsidies. Moving on to page seven, I just wanted to walk you guys through a little bit of the... The history of what we've got in the pump storage and the hydro and the attractiveness that that investment has had for us. So we invested about 700 million pounds when we bought this business from Scottish Power. Over the last five years, it's delivered effectively more than 700 million of adjusted EBITDA. The investment has paid back in five years. And we expect that to deliver very significant returns going forward. Look at the upper right-hand side of that page. Krook & Toon made real progress, or the plans for Krook & Toon made real progress in 2023. We've received our planning consents in Scotland, and we continue to expect FID in 2026 and operations to begin in 2030. That fundamentally would give us another 600 million megawatts, sorry, 600 megawatts of additional capacity on the back of a 600 million pound investment. Finally, on the lower right, more new news. We have a new project to upgrade the Krook'in two of the units, units three and four of Krook'in one, or what is actually operating today. That refurbishment project is about an 80 million pound investment. It will increase the capacity of Krook'in as it is today by about 40 megawatts. So it's two 20 megawatt expansions of two of the existing units. It'll improve reliability and operability. and expect it to actually be delivered over the course of the next three years, i.e. between now and 2027. That investment is underpinned by a 15-year capacity market contract that we received a couple of days ago, and that gives us about $221 million of contracted revenues over the course of that 15-year period. So we expect this to be quite an attractive investment with the potential to deliver greater than 20% post-tax returns. Turning to page eight, let me talk a bit more about our pellet production business and how we get to that 250 million pounds of expected EBITDA. So once we complete the expansion of Aliceville, which is commissioning now, as well as the new plant we're building at Longview in Washington State, we'll have greater than 5 million tons of capacity, which we expect to be able to deliver 5 million tons of production from those assets. Longer term, we're targeting 8 million tons, but we'll only do that when we have visibility on the bridging mechanism in BEX in the UK, as well as on new third-party long-term contracts. And then we're targeting 4 million tons of long-term supply. And that, you know, I'll talk a bit more about this, but we're seeing good opportunities in our existing markets and very interesting new opportunities in the markets for biofuels and sustainable aviation fuels, as well as BEX. So again, just as it is today, integral to our business in two ways. It provides a significant sort of support and great optionality in our vertically integrated supply chain. We expect that to continue to be true through BEX and the bridging mechanism in the UK. And also gives us exposure to what we think is a very attractive and growing biomass market globally. Give you a sense of where that market is going. So first thing I would say is we started supplying a new 500,000 tonne deal into Japan. And as Andy will talk about in more detail, the pricing of that contract is consistent with the pricing that we're expecting to enable us to achieve that 250 million pounds EBITDA number. Second thing is to point out, we signed a letter of intent for the sale of up to a million tons of biomass with a major European utility for several different projects, including biofuels and sustainable aviation fuels. Again, with that, we've announced that. on this letter of intent. We are in active discussions for other biofuels and sap products, both in the US and Europe. We're also in active discussions around supplying BECT projects, both in the US and Europe. So very excited about the growing pipeline we have for third-party sales in the wood pellet space. Again, we're targeting greater than 250 million pounds of EBITDA long-term in this business through a combination of increased production volumes improved margins on legacy third-party contracts, and new sales at attractive market prices in those new markets for SAF and VEX. And then it will take you through more detail on some of the numbers in this section. On page nine, I want to talk you through a little bit what we see in our biomass generation business effectively over the course of the next few years. So we have strong contracted revenues. of greater than 2.8 billion pounds over the next three years, as well as an additional 1.2 billion of associated renewable support. We're fully hedged for 2024 and almost so for 2025. Clearly, in addition to the 2.8 we mentioned, as we roll out our hedge, we would expect to generate significantly more value from generation that will be hedged between now and 2026. We're absolutely confident that the DPS is critical to the UK security of supply and talking a bit more about that. It's the UK's largest source of renewables, as well as being flexible. And at 2.6 gigawatts of capacity, it's about 80% the size of Hinkley Point C, which as we all know is now coming online, not in 2027, but in 2030, or at least that's the current plan. As the economy electrifies more and there are greater demands on power, the UK needs more power, more renewables, more flexible energy systems, and more ways to remove carbon from the atmosphere. The Drax power station with BEX can help the government meet its ambitious targets for greenhouse gas removals. All these factors underpin our expectation of long-term value from a bridging mechanism and also from BEX. So on page 10, the final page of this first section, we have very attractive opportunities for growth, as I mentioned, that are again consistent with the world's objective of achieving net zero. But our ambitions remain the same. To be a global leader in VEX, to be a global leader in sustainable pellets, and to be a UK leader in flexible dispatchable power. Now, over the last few months, we've been looking at our portfolio, how we expect the timing to play out, as well as the UK government's program. And I just want to make clear how our timing and our phasing looks as a result of that, sort of looking at those things and how they've changed. So first, in terms of BECCS, we still have an objective of doing ultimately 20 million tons. We still expect one unit in the UK by 2030 and one unit in the US by 2030. And all of those, of course, depend upon getting them right government support in place, as well as indoor PPAs for power and carbon, which is the main form of support for the U.S. business. In terms of flexible generation, we've got the open cycles coming online this year. We've got the Krookin 1 and 2 expansion by 2027, and we've got Krookin 2 by 2030. And again, a big step forward. Last year was the announcement of the cap and floor sort of minded to position from the government on that. So again, we are Very excited about the opportunities to invest there. And finally, in pellets, we're looking to grow to 8 million tons when we have clarity on future on the bridge, on BEX, and on future long-term supply. So with that, I'll turn it over to Andy for the financial and operational review.

Thank you, Will. And good morning, everybody. So starting with the financial summary on slide 12. We've delivered strong financial performance with a strengthened balance sheet and additional returns to shareholders. Our adjusted EBITDA excluding EGL of just over 1.2 billion grew 66% over the prior period. If you include EGL of 205 million, adjusted EBITDA grew 38% to just over 1 billion. And of that 1 billion, approaching 40% was delivered by our FlexGen, and energy supply portfolio and pellet production. We've generated 1.1 billion of cash from operations in the period. That includes a collateral inflow of 155 million. And in 2022, we delivered 320 million, but after a collateral outflow of 400 million. So if you exclude collateral movements, our cash conversion rate's been 95 to 99%. in those two years. So it's a very strong cash conversion. These future earnings and our cash flows provide a strong foundation for maintaining our credit rating, investment in our core business and strategy, and growing and sustainable returns to our shareholders. The board's proposed a final dividend of 13.9 pence per share, bringing the full year dividend to 23.1 pence. It's a year-on-year increase of 10%. Our leverage is reduced further to 1.1 times based on adjusted EBITDA, including the EGL, and we're making good progress with refinancing activities. We expect to repay our 2025 debt maturities through cash generation and refinancing in 2024. So moving on to slide 13, the high quality asset base. I'll spend most of my time on this slide to talk through the strong financial performance in 2023 and highlight the strength of future earnings and cash flows from our existing high quality assets. So the total column on the right shows a breakdown at 23 performance consistent with prior periods and all the normal year on year bridges are included in the appendices. So starting with the first column, FlexGen and energy solutions. The continued strong performance of our pump storage and hydro operations delivered another year of growth, with adjusted EBITDA of 230 million, a 35% increase from 171 in the prior year. The primary driver of this significant increase was a high level of activity at Kruken, which delivered system support services and higher volumes of power generation. The location, flexibility, and range of services that Kruken can provide makes it strategically important to the UK power system. National Grid system support service data shows significant growth in the value of system support services over recent years, and this is a trend that we expect will continue. This week, we secured a 15-year capacity market agreement for a refurbishment of Krookhan units three and four, but we'll see the capacity of those units increase to 240 megawatts. We expect capex of around 80 million pounds and capacity market income of over 220 million pounds underpinning strong double digit returns. So next profitability in our customers business improved significantly with adjusted EBITDA of 72 million up from 26 million in the prior year. This reflected a strong performance from our INC business where volumes of power sold have grown 7% to almost 16 terawatt hours as we continue to expand our high quality INC customer base. This growth in earnings was supported by increased power prices with consistent margins and lower balancing costs as well as significant earnings from our renewable PPA portfolio. The customer's business purchases Regos from our generation business and it makes an appropriate margin. In 2023, it benefited from increased Rego income. We see further opportunity for growth in energy services. And in September, we acquired BMM Energy Solutions, an installer of EV charge points. The acquisition strengthens our end-to-end EV charging proposition as part of our commitment to support customers in achieving their net zero ambitions. The renewables PPA portfolio that was acquired with Opus is now being managed as part of our IMC business. And during the year, we reallocated 145 million of goodwill to reflect this change. That's supported by strong future cash flows. As previously announced, we stopped new gas supply sales in Opus with a significant year on year reduction in the supply volumes through a carefully managed off boarding process. So following the transfer of the PPA portfolio and the exit from gas supply, We recorded a £69 million non-cash impairment in Opus, and this is shown as an exceptional charge. In total, during 2023, our existing FlexGen assets delivered £302 million of adjusted EBITDA. Over 80% of those earnings relate to capacity market payments, system support, renewables and energy services. That means less than 20% came from power. Construction of our three new Build OCGTs continues, and these assets can play an important system support role, providing combined capacity of around 900 megawatts, and will earn £275 million from a 15-year capacity market agreement that commences in Q4 of this year. In addition, they'll earn income from peak power generation and system support services. We continue to assess options for these assets that includes a potential sale. However, an exercise to backcast the value of the OCGTs over the last three years shows that on average, they would have contributed adjusted EBITDA of greater than £17 million each year. So illustrative earnings for 23 increased to over £372 million if you include the average three-year backcast earnings for the OCGTs. and they'd increase further still if you include the expected income from the Krookum 3 and 4 refurbishment project. We are targeting post-2027 recurring adjusted EBITDA for flex-gen and energy supply of over £250 million. In slide 27 in the appendices, you'll see details of already secured capacity market payments for this portfolio in the period until 2042. They total around 600 million pounds. This grows to 850 million if you use an illustrative 35 pound kilowatt clearing price for future auctions across the period. And these values are in 2023 money and subject to indexation with UK CPI. So moving on to the second column and pellet production. 2023 was a challenging year for our pellets business. In the prior year, we delivered 134 million of EBITDA from 3.9 million tonnes of production. That equates to around £35 of EBITDA margin per tonne. In 2023, this reduced to 89 million of EBITDA from 3.8 million tonnes, or just under £25 of EBITDA margin per tonne. We began the year anticipating increased production benefiting from the full year impact of plants that were commissioning during the 2022. However, during the year volumes were negatively impacted by a higher than planned level of downtime, as well as wildfires and port strikes in Canada and hurricane damage at the port of Baton Rouge. As a consequence, we incurred additional costs, primarily higher repairs and maintenance costs, and the fixed cost per tonne also increased Further, 2023 saw higher volume of shipments to lower value legacy contracts. Most of these contracts were signed when market prices were lower, and while price escalations do apply, cost inflation has squeezed margins. As these contracts come up for renewal, we expect to expand the EBITDA margin. With improved output from our existing plants, and around 600,000 tonnes of new capacity from Longview and Aliceville expansion projects, we believe that future production can reach around 5 million tonnes. Market forecasts show significant growth in demand as markets such as BEX and SAF begin to accelerate, and we believe our pellets have increasing value. In summary, we are targeting post-2027 recurring EBITDA of over £250 million, per annum based on around 5 million tonnes of production and an improved EBITDA margin per tonne. Grax has around 20 years experience in biomass and a robust and diversified global supply chain which provides a firm operational foundation from which we can deliver these plans. Moving on to the third column and biomass generation. Adjusted EBITDA grew 34% to 703 million, and that's after EGL of 182 million. Biomass availability of 90% improved from 87% in the prior period, but reflected two major planned outages in the year versus one in the prior year, the generation volume spelled to around 11 and a half terawatt hours. Our RO units are fully hedged for 2024 and almost fully hedged for 2025 with over 20 terawatt hours locked in at attractive prices over the two years. We expect the CFD unit will run at a high load factor for the coming years, subject to securing the biomass. And we also anticipate additional longer term value from the bridging mechanism and VEX. Across these existing assets, we continue to see two billion pounds of free cash flow in the period until 2031. We're defining free cash flow as adjusted EBITDA, less maintenance capex, including the balance of OCGT investments, interest tax, EGL, and notably a growing and sustainable dividend throughout. So turning to slide 14 on the balance sheet. We maintain a strong focus on cash flow discipline and maintaining a robust balance sheet. Our available cash and committed undrawn facilities at the end of the year of $639 million provide substantial headroom over our short-term liquidity requirements. In January, we agreed a one-year extension to our $300 million revolving credit facility, which provides further committed liquidity out to 2026. No cash has been drawn on this facility since inception. During 2023, we put in place a liquidity facility to manage the working capital associated with power trading. And at the end of the year, 120 million was drawn. As we see further collateral unwinds during the year, we expect to repay this in full during 2024. At the end of the year, net debt of 1.1 billion represents a leverage ratio of 1.1 times based on adjusted EBITDA included EGL. That's a reduction from 1.6 times in 2022. We're making good progress with financing activities, reaffirming that their strong appetite for Drax credit. In November, we agreed an extension with existing lenders of our CAD ESG linked term loan, extending it from 2024 to 26, whilst reducing the value to 200 million Canadian dollars. In January, we repaid 144 million of the UK infrastructure term loans out of surplus cash with maturity dates in 2024. In February, we closed on a 258 million term loan on competitive terms with a group of six banks. One tranche of the loan totaling 165 million matures in 27 and has the option to extend two years. And the second tranche totaling 93 million matures in 2029. And we will use these funds to repay the 2025 bond maturities. Both Fitch and S&P have affirmed our corporate credit as BBB plus stable. We also have a BBB minus stable investment grade corporate rating from DBRS. The quality of the group's assets, earnings and cash flows provide a strong platform from which to execute our strategy. We've sought as much flexibility as possible within the capital structure. And this year, all the group's debt is repayable at little to no cost. Moving on to slide 15, capital investments. We expect capex to be in the range of 410 to 450 million for 2024. Our maintenance capex of 100 million for 2024 is lower than in 2023. primarily reflects one major planned biomass outage compared to two in 2023 and as noted earlier the completion of a number of significant capital projects and pellets during 2023 following the unplanned downtime. Growth and enhancement capex is expected to be around 290 million. We expect to commission our three OCGT projects in the second half of the year with capex in the year of around 90 million. Construction of our Longview pellet plant continues throughout 24 with capex in the region of 150 million. And in respect to the Crookham 3 and 4 refurbishment project, we expect to spend around 30 million of capex this year. As Will outlined, we continue to have positive engagement with the UK government on BEX at Drax Power Station. We're carefully managing further investment pending additional clarity on the project. And finally, to note that we are not yet capitalising any costs in respect to the potential investment in the expansion at Krugan, for which we've recently received planning consent. So moving on to slide 25 and capital allocation. Our capital allocation policy, which was launched in 2017, remains unchanged. Strong financial performance and cash generation is supportive of maintaining our credit rating, paying a growing and sustainable dividend, It also positions us well to invest in our core business and progress our strategic plans. With 1.1 billion of cash generated from operations, we increased returns to shareholders to 236 million in the year, inclusive of a buyback of 150 million. Our policy to pay a growing and sustainable dividend, and over the last seven years since the policy commenced, dividend growth has averaged around 11%. The fourth leg of our policy is to return surplus capital to shareholders. And we consider several factors in this regard, including upcoming debt maturities, the quantum and timing of our capital deployment, any dilutions of share capital for employee share incentives, and any inflows from the divestiture of non-core assets. And with that, I'm back to him. Thank you, Andy.

And I want to spend a few minutes now talking about safety, compliance and sustainability, which are sort of critical factors for our business. And we recognize the importance of those. And we also recognize the opportunities we have to continue developing and improving our systems in those areas. First on page 18, let me talk about safety. The safety of our people is always critical. Our safety performance is assessed against both a leading indicator and a lagging indicator. The leading indicator is the near-miss and hazard identification rate, which is measured primarily based on the number of environmental safety and process safety observations across all of our operations and all of our locations. And the purpose of that is intended to embed a positive reporting culture that we've sought to introduce across the group. And when we actually see our scorecard, you'll see that actually our performance in that area has been strong in 2023. The lagging indicator is the total recordable incident rate, which is displayed on the left-hand side of the page. We improved our performance in that area relative to 2022, but it's still not as good as it needs to be. So fundamentally, we are reinforcing the need to be safe and the need for all colleagues to pay attention to safety, and we're looking to improve our performance in that area in 2024. Turning to page 19. a little bit of an update on regulation and compliance. I wanted to just comment on the National Audit Office review of the government's biomass strategy. Just really a couple of points there. First is that the review can recognize and reiterated the importance of biomass for the government's future energy strategy. It also outlined opportunities to improve and develop assurance and standards consistent with statements that have been made by the UK government. And we will work, as we have been, with governments, as is appropriate, to continue to help improvements in those areas which we fully support. Secondly, on the right-hand side, a couple of thoughts on Ofgem. First, I just wanted to make sure everyone was aware that we are audited on our biomass sustainability every year. The latest audit was in May of last year, and that assesses our compliance with the Renewables Obligation Scheme, and in that audit, we received a quote, good rating, which is the highest available rating. And again, please rest assured that that's absolutely critical for us, and we spend a lot of time and effort making sure that that goes well. The biomass profiling data investigation with Ofgem is continuing, as you know, and we are continuing to work closely with them. And again, two points there. There's nothing really to update, but I want to make sure people are aware that is not about sustainability. That is about the profiling data that we provide the government alongside. A few words on sustainability and how we're continuing to develop our capabilities in that area. So sustainability is absolutely a key enabler for the group, right? Both for our activities today and also for our future strategy. And through the course of 2023, we will continue to progress and improve our reporting and our disclosure. So we have achieved compliance with TCFD reporting requirements. We have a pilot on TNFD that's been completed. And we've actually had approval from SBTI of our own science-based targets. There's a lot more detail on all these points in our annual report and accounts. And again, recognize that these activities are fundamentally critical to our success as a group. And we also recognize that there's always more work to be done, and we continue to do that. In that spirit, during 2023, we worked with the environmentalist Jonathan Port and the organization Forum for the Future. We asked them to advise us on the conditions necessary for BECCS to be delivered successfully for all stakeholders. And they set out in their report 30 conditions that they think are important. And we've reported back on most of these, with which we generally agree. And we will be reporting back on the remaining conditions over the course of the next few weeks. So recognizing the progress we have made with our reporting and disclosure, we have seen an improvement in our CDPR carbon disclosure project carbon rating from B to A. But again, we are still working on that and there's always more to be done. The final section is a few words just to update where we are in our strategy. And I'll start with what's happening in the UK, the Drax power station on both bridging and non-BACs. just to review some of the key things that happened during 2023 and what we expect to happen during 2024. So the first thing to highlight is that the government reiterated, I would say, or pulled together really for the first time, a comprehensive statement of its biomass strategy, and they did that in August. And for me, it's quite important to recognize that that strategy has not changed in a long time. Biomass has been central to the UK strategy consistently, as long as I've been at TRACS, and much longer than that. But it was great to see that all confirmed and reiterated in one place in the biomass strategy. Subsequent to that, in December, they announced a sort of position on the BEX business model, a consultation on the BEX business model, as well as an update on the CCS project, sort of process, and track one extension and track two. Again, good progress on CCS. In January, we received approval for our BEX project at Drax Power Station, we received our DCO. Again, very excited about having that. It's also quite important to recognize that the Secretary of State used very clear language in that document, so reiterating the importance of BEX to the UK's net zero objectives, and also the importance of greenhouse gas removals. And all of that is very much, all of what I've said so far, completely aligns with our 2030 objective for having BEX online at the Drax Power Station by that point in time. Now, there have been traditional reviews launched against both the DCO and the biomass strategy, as I think everybody knows. Those are as we would have expected, and we don't think that they will impact the critical path for our project. Final point about what's happened so far is that the consultation on the bridging mechanism was launched earlier this year. It actually completes today. Again, we're very pleased with the sort of the speed with which that's taken place. The government clearly, I think, recognizes the importance of a timely conclusion to that process. We're in very in-depth bilateral discussions, very much data based around how that might work for us. And again, those discussions, I would say, are going well. So what do we expect to happen in 2024? I think three things point to. One is we would expect the bridging mechanism discussions to actually to be completed and a bridging mechanism to be agreed with the government by the end of the year. Clearly, there will be elections that has the potential to impact the timelines, so I would be foolish to promise something. But again, we absolutely recognize that DESNES and the government is very intent upon working with us to get to a rapid conclusion of that process. The second thing we would expect is we'd expect to be chosen as either a Track 1 expansion or a Track 2 project during 2024, which allows us to keep moving forward in 2025. The discussion negotiates specifics around our Power of X project in that year. In order for that to be true, we also expect the Power of X business model to make significant progress during 2024. And the final point I would make is that there's going to be significant activity around transport and storage infrastructure, both on track one expansion and track two. And we expect to see real progress in those areas this year. So again, if you're sort of looking backwards, it would have been great to have been chosen as a track one project as the Green Day, which we weren't, but the activity and the progress we've made on the new approach, which I've just laid out, we are extremely pleased with how that's going and how that's going and look forward to including many of those steps in 2024. Green Day 23, just a couple points I wanted to highlight on the with clear importance of the Drax power station. The chart on the left really highlights how important the Drax power station is to energy security in the UK. So the pink shaded area shows the expected peak demand as per National Grid's future energy scenario. So clearly expected to rise as the economy electrifies as part of the whole process of trying to tackle climate change. The blue bars show the expected level of existing derated capacity, less expected retirements, and clearly there's going to be significant declines. And then we've showed the Drax power station the importance of that to the current capacity in the hatched areas. So there will be new capacity, but there's the potential for lots of delays in that area. And so I think it's very clear to us, and I think clear to many, that the Drax power station is going to be absolutely critical to energy security in the UK well through the 2030s. And then the couple of comments on the right really come from a study that we commissioned from Moringa about why we think BEXA-DRAX is a value-for-money option for the UK economy. So first, it's the only credible option for near-term large-scale carbon removals to enable the UK to meet its target of 5 million tonnes of greenhouse gas removals by 2030. And we've looked at, you know, What is the economic benefit of doing that relative to other decarbonization options? And the Beringa report expects us, the country, to save about 15 billion pounds relative to the next best alternative, which is equivalent to 25 pounds per household per year for 20 years. Again, important for security of supply, good value for money for decarbonization options, and the drive power station has got a very attractive future. Turning to global BECCS, just a brief update on what's happening there, really. The key things that we've done there, we continue to move forward with our first sites. We expect that to get into a feed study during the course of this year. You will have seen that we've signed some agreements for some options on fiber. So fiber, transport and storage, site location, all moving in a very positive way over the course of 2023, and we expect that to continue through 2024. We're setting up the infrastructure and the team for global banks growth. We've got a headquarters for that business now in Houston, Texas. We've added, we've appointed a president, Lori Fitzmaurice, who joined us in January, early February, and she's been a fabulous addition to the team already, hit the ground running. So great to welcome Lori. And we're, again, targeting FID in 2026, as well as being online in 2030. Turning to page 25 and an overview or conclusion. So again, we had a strong financial year in 2023, delivering strong returns for shareholders, delivering a strengthened balance sheet, and continuing to develop our strategy. Delivering for all stakeholders is a key part of the UK power system, and we expect that to be true for many years. And I think we've highlighted, we have a very strong and attractive cash generator business today with long-term cash flows underpins the balance sheet, as well as the opportunities for growth that we have that are again aligned very much with net zero. That consists of the FlexGen business in the UK, which sits at the center of the UK power system. And again, which we expect to become more important as we transition to greater levels of renewable power generation. We're targeting recurring EBITDA of greater than 25 million random through the 2030s from our non-BioMax flex-gen and energy supply business, as we've mentioned. And we're also targeting greater than 250 million pounds of EBITDA over the same period from our pellet business. As we see attractive opportunities in SAF and in VEX, as well as an opportunity to continue improving the profitability of our current business. Finally, biomass power generation at the Drax power station, we expect that to generate significant cash flows from contracted positions over the next three years. and remain critical to the system for a long time. All of these activities provide a strong foundation for our balance sheet, for the growth in our dividend, and for our ability to invest in the attractive opportunities we have across our strategy in biomass, specs, and flexible generation. So thank you very much for your time, and Andy and I are very much open to questions that you might have.

Hello, if you wish to ask a question, please press star followed by one on your touch-tone telephone. If you change your mind and wish to remove your question, please press star followed by two. When preparing to ask your question, please ensure that your phone is unmuted locally. To confirm, that's star followed by one to ask a question. The first question from the conference is Dominic Nash of Barclays.

Good morning, and I hope you can hear me okay. Yeah, we got it, Dominic. Thank you. Brilliant. Thank you. So thanks for your presentation. Thorough, as always. I'd like to start with three questions, please, if possible. The first one is on Kraken, the 40 megawatt expansion that you announced. Well, you won the capacity market for yesterday. Is it fair to assume that that's basically going to be sort of prorated sort of profit contribution over the sort of current 440? So you're looking at sort of 10 million EBITDA number. And you say that you're looking at evaluating business models for the further Kraken 600 megawatt expansion on top of that 480. Could you just give us the pros and cons of the regulatory models versus the merchant model you're looking at and why you don't just press the button on it now and go down the merchant route on that one. So that's question number one. Question number two on the bridging mechanism. Clearly the consultation closes today. I believe the government gave us four options that they were looking at as to CFD, CFD with caps, cost plus basis, fixed margin, et cetera, et cetera. Can you give us some colour on what your response to the government is on your preferred model and how you're sort of giving us some colour on how the actual discussions are going on, how they're going to sort of calculate the number. And then finally... On the cash flow numbers, I think at the last CMD, we were basically saying, look, our starting position is a debt of one billion. We've got seven billion of capex out of 2030, 31. The current assets will generate two billion in cash flow and new assets will give us three. And then we kind of go, well, we can do the sums there. And basically, you're guiding to a net debt by 2030, 31, I think, of three billion or greater or less. Now you're basically taking three billion off that capex number. So you're going from seven down to four. I presume that means that you're not going to be starting to build on further BEX units. But I presume that the new assets might contribute a little bit less. But is it fair to assume that you're now kind of guiding to a net debt vaguely free company by 2030, 31? Is that a fair assumption? Thank you.

Thanks, Dominic. I think that probably covers everything that anybody else wanted to ask as well, so we'll take those in turn. I'm going to give Andy the fourth one, give him a chance to sort of get his number straight on all that. But take the first three. So in terms of the expansion of Krookin, I would say in terms of the operational impact, I think yes would be the answer. It will run very much similarly to the way the current assets run, and that additional capacity should provide earnings that are consistent with what we've got so far, right? But I would, I mean, again, important to parse out the capacity payments, because obviously those are significantly different from the ones that we've already got. So that's sort of an obvious point, but I think that's an important one to raise. In terms of the business models for Kukin 2, I mean, I guess I would probably caution a little bit on the whole merchant space. I mean, the Trying to do that without any type of long-term contract, I think, is quite unlikely. I mean, I think that, you know, basically talking about five-year bills, sort of 10-year completion. Again, I've said this before, it's an asset that basically without, if you were a completely merchant, you're effectively, you're taking something that is, where you're called onto the system by National Grid in ways which, you know, it's difficult to forecast and predict. So we think it's important we have some form of support. I know we are. There is sort of increasing interest in synthetically created 24-7 green power, I think, as you know, so-called sort of ATC in the US or 24-7 green power in the UK, where people who have wind and solar assets and that actually would like to sell, especially to their large INC customers, to sort of 24-7 products. There are people who are interested in doing some things like that, right? But I would say that's in early stages of exploration, and there's no question that a sort of cap and floor from the government supporting that project we think does create an attractive risk-reward profile for us. So I think that would be still very much the plan of record, Dominic, but we are looking at other things as well, I would say, just to make sure we get to the right place on that one. In terms of the consultation on the bridging mechanism, again, to sort of remind people where that sits, there were four options. There is a sort of unconstrained CFD. There is a constrained or sort of capping or colored CFD, i.e., maximum amount and minimum amount of generation. There's a sort of a rate of return approach, or there's a capacity payment approach, right? Now, I won't go into all the different options, but I mean, for us, I think we think that that's sort of the CFD with a maximum running and a minimum running is the most attractive option really for the UK power system, right? And ensures that you get sort of the generation from the assets that the system needs, but it also allows us to optimize across the system and to run effectively when power is, sorry, when the system is short power, right? doesn't make sense to have a construct that effectively puts us on the system, you know, when we would be potentially displacing other forms of renewables. And so the key is a system that actually incentivizes us to be there when the system needs that power. And we think that that's the constraint CFD is the best way to do that. And Andy, over to you for some cashflow numbers.

Dominic, I would say we will be sub two times levered at the end of 2031. I guess depending on how the investment timing works, I expect the peak will go beyond that. But of course, the key to making investment decisions here is having a high level of confidence in the future cash flows. So that's the underpin for BEX in the UK with the CFD and forward sales of CDRs for the projects in the US. So two times at the end of 2031 is where I would guide you.

Maybe one thing I would add to that, Dominic, and it's really true for all of the projects. I mean, I think the specifics of how the financing plans for Groupon 2 or the different back projects, we haven't disclosed the work that we're doing on those. Because clearly, I mean, the numbers we've given you are very much sort of corporate balance sheet level numbers. And in all those three projects, we think that there's interesting opportunities for project level financing that we're obviously working on. So when we get to that point and we've developed those ideas, clearly we'll share those more with you guys. Okay, thank you.

As a reminder before the next question, you may also ask questions in the written format via webcast platform. The next question is from Alex Wheeler of RBC.

Hi, morning everyone. Three as well for me, please, all on pallets. Just firstly, on the Pellett business, if we assume a more normalized year for 2024 EBITDA similar to 2022, so let's say around 140 million, can you take us through how the EBITDA growth would look and what the key drivers are for that growth to 2028? Secondly, just on Pellett again, what are the base assumptions around BEX when you forecast the Pellett business at greater than 250 million EBITDA post-27, does that number change if BEX does not go ahead, given the change in market demand that we may see for pellets? And then my last question is just on, when you talk about expanding production in the pellet business, what does clarity on BEX mean for expanding production capacity towards that 8 million tonnes? Is that post-subsidy confirmation in the BEX business model? And if that is the case, given it's 250 million for 5.6 million tonnes, is it fair to assume that at 8 million tonnes you'd be close to 350 million EBITDA? Thank you.

I'll try and take those one by one and come back to me if I miss anything. I think I'm starting from £22 million. where we did the £134 million and the £35, so a margin of a ton is a good place to start because, as we discussed, there were challenges and headwinds this year that have impacted our output and our profitability. But if you start there, our capacity today should allow us to make more pellets than we did in 2022. We were commissioning plants in 2022 and we should have seen the full-year impact of those this year, but for the reasons we discussed, we didn't. So the first thing is we need to get more capacity out of our existing plants, but then we also have 600,000 tons of capacity coming online. So together we think we can achieve 5 million tons of output from our plants. If you take 5 million tons grossed up from 3.9 at that similar margin, you can do the maths and that will make a significant step forward, but it'll still leave you a gap. And the reason for that gap is because our third party legacy contracts are much lower margins. So the £35 is an average margin across the portfolio. But those contracts will come up for renewal in future years as they roll off. And as we said, they were signed a number of them many years ago with 10, 15-year agreements. And as they roll off, we would expect to reprice them at similar margins to the rest of the book. And that's just assuming a market price. So if you add in then the increment there, I think you can bridge to where that number is. And of course, if every contract doesn't renew, the demand is growing. So back to demand for biomass is growing. There's new markets like SAP opening, and those markets have good ability to pay, and we can sell pellets into those. And we signed MOUs, and we signed contracts in recent years at those prices that we're targeting. So that's how I've bridged to the sort of 250. On the question about post-27 BECs, That 250 million is based on 5 million tons of capacity we have after these Longview and Aliceville expansions are done. It doesn't assume we build any more capacity to up to 8 million tons. So if it goes beyond that, then the 250 changes and it increases. And we would expect to get a market price for the pellets. And we've always said we will assess our deployment of pellets against the market price for them. And lastly, on the production capacity, I think clarity over the subsidy mechanism is the thing that we need in order to underpin investment in the extra capacity.

Okay, thank you.

The next question is from Pavan Mabubani of JP Morgan.

Hi, good morning. Thank you for the presentation. I have two questions, please. Similar to Alex's question just on the 250 million guidance for the combination of flexible generation and supply. I was just wondering if you could give a bit more color, maybe an indicative split of how you see those profits evolving given you've clearly had an exceptional year in hydro and I'd say maybe better than what you would expect in customers as well. How do you see those bits evolving and where do you see the OCGTs contributing based on your black cast? Can you give us some color on how you expect all of those to evolve and or what split you would expect of those three businesses in the 250 million medium term guidance? And then my second question is around Beck's will and the key milestones you've flagged for 2024. I mean, if we think about by the end of the year, can you give a bit more color on where you expect to be on the bridging mechanism? Is your aim to have a contract signed? Are we going to know what the final parameters are? Is the discussion going to take maybe longer than we have for 2024? And similarly for power backs, where do you expect to be by the end of the year or maybe by the election? Any more detail on that would be helpful, thank you.

Okay, so, Pavan, broadly, I would assume 150 for the hydro, 50 and 50 for customers and OCGTs. And that would be plus or minus. But I'll give you the logic. If you look at the years we've had this year, I mean, clearly the hydro pump storage performance was very strong at 230. So we are not assuming a repeat of the exceptionally high power prices. we are assuming continued like growth in the volatility in the system support services as we discussed and remember we have the income from crew can 3-4 refurbishment on top it's also underpinned by strong capacity market income on the customers again 72 was an exceptional year and had the benefit of, you know, the margins are consistent, but on higher revenue driven by higher power prices. So we're not forecasting that that happens every year. But we are forecasting that we'll see continued growth in energy services also. And on OCGTs, the back cast was 70. If you assume 50, again, it doesn't assume that the peaks are as high as they have been this year. but it does assume continue we can pick up you know system support from the volatility and peak running but it's also backed by very strong capacity market income also and the slide on I think 27 is worth looking at to see it's back to that you know 850 million in today's money for those assets alone underpinning those future earnings and the last thing I would say there is because we haven't assumed the peak power prices like they've been this year, we're positively exposed then. We're not assuming it happens every year, but from time to time, as these things happen, we're positively exposed to that.

Yeah, thanks, Paul. And so on your two questions, just for more color on the bridge and the power back. So first on the bridge. So I guess I sort of see this as one of the steps in what's happening. So right now, so the consultation finishes. We expect the government to make a decision potentially in Q1 as to actually what it will look like. That sort of puts us in a position to actually start, you know, sorry, at the same time, we're already in discussions with the government around data, numbers, et cetera, and how that will start to look. During the course of Q2, we would hope to sort of reach a conclusion on, you know, what is the mechanism as well as what is potentially some of the numbers around that. I would say getting sort of a meeting in the minds, absolutely expect that sort of before the summer. Best case, get an actual contract agreed and signed, also before the election. That would be our base slash high case, if you will. When the election happens, which we obviously don't know when that will be, I think it would be fair to assess that there will be some sort of a gap as the new team gets itself up to speed, or maybe not. If it's the same team, we don't know. Fundamentally, I think the key point from our perspective is that One, the officials in Desnos absolutely recognize the importance from both our perspective of enabling us to get our supply chain in place, but also from the UK's perspective, because, you know, as Andy has pointed out, as I've tried to point out, you know, we think the market for pellets is an attractive one. And so the sooner we lock into the supply chain, the better chance we have of getting the best value. So I think that's well recognized. So again, we would, our expectations that we can get to a signed contract in place and all that done by the end of 2024. In terms of power backs, I mean, there's, again, there's two pieces of this, I guess I would say. One is the, where do we end up on the infrastructure? So the first point is government, we expect to choose platform expansion and track two projects during the course of this year, sort of towards the end of this year. And again, we would expect to be chosen as one of those, right? Similar to the process around track one, once you're chosen, then you move into the next phase, which is actual detailed negotiations with the government on your project, which is again, a 2025 thing. That's one piece of it. The other piece of it is the BEX business model. So we expect during 2024, the power of BEX business models to be defined. So when we actually get to the point of being chosen, we can actually enter the specific discussions with them around what the terms of our agreement would be, right? Now that the negotiation of that agreement is going to take, I would say, quite a lot longer than the bridge would because there's a lot of new things in there. There's a lot of issues around cross-chain risks. There's a lot of CCS-type risks that need to be managed and determined. So that, again, I would say, as opposed to the bridge, which we think we can include in practical stuff quite quickly because it'll be built on contracts that are already known, that that will take quite a bit longer, i.e. 25, potentially into 26. I hope that helps.

Yeah, that's very helpful. Thank you. If I can just ask one more unrelated question, please, Andy, on pellet production. Can you remind us of how you hedge your foreign exchange exposure? What hedges exist today and when do those expire, please?

Yeah, we do it on a rolling five-year basis, tavern. So we're locked in basically now through the end of 27, 28, 28, yeah.

Okay, great. Thank you for the answers.

The next question is from Harrison Williams of Morgan Stanley.

Thanks, yeah. Morning, everyone. So two questions from me. I think looking at your hedge book, clearly a very enviable position for next year, but as we look out to 2026 and maybe try and calculate a bit of a bark spread, You've historically given us some guidance on, you know, where you're all in biomass production costs would be in pound to megawatt hour. Could you help us on that front either now or kind of as you look to 2026? So that's the first. And then the second on the gas plants, can I just confirm, so that's 70 million, does that include the capacity market payments? And as you look, well, as you kind of say you're still considering the sale of these assets, can you comment on what demand for that has been like? And with the use of that capital, if you could sell it, would that factor into the long-term investment plan or would that be something you would consider returning to shareholders more quickly?

Thanks. Why don't I take the second one and then I'll ask Andy to sort of take on the first one. So in terms of the actual forecasted or back-casted numbers for the open cycles, that does include the CM payments. So yes, that's a sort of an all-in kind of number. Secondly, I would say, frankly, our approach to this has been that it makes a lot more sense to have them up and running commission than actually some operational experience before we actually sort of test the market again, because that's the point in time where we would see the sort of fundamental view of the operational risk change and the value change. So not, don't really have an update on where we think the market for those are other than to say that the, you know, the numbers that we've shown and the sort of the attractiveness of these assets in an increasingly volatile environment, my view is that they're, they're, they are, proving what we expected them to prove, which is that they will be quite attractive assets as and when that comes around. And in terms of the use of proceeds, I mean, you know, clearly as Andy described, our capital allocation policy sort of effectively includes sort of the cash generated from disposals as part of the assessment the board will do. So as and when that comes, the board will look at, you know, our opportunities, cash position, balance sheet, et cetera, and take that all in around to make an assessment as to whether that's a return to shareholders or part of the investment program.

And on the first question on the all-in biomass costs, I'd say use over 100 pounds would be the right number. That's it.

Thanks very much.

The next question is from Charles Swaby of HSBC.

Hi, good morning everyone and thank you for taking my questions. I have three. First, I was wondering if you could comment on the fall in UK carbon prices and what implications that could have for BEX. Second one, I was wondering if you could also update us on the potential contract renegotiations within Beaver and any views on what that situation there means for the biomass market going forward. And then thirdly, it was obviously a record year for system support earnings. I was wondering if you could provide any guidance on what to expect on a go-forward basis there and what the impacts of lower power prices means for the system support earnings. Thanks. Sorry, Charles, could you repeat this third question? I didn't catch that whole thing. Yeah, sorry. It was around system support earnings and if you could provide any guidance on what we should expect on a go-forward basis, particularly with lower power prices coming into effect.

Okay, why don't I take the first couple of those and then I will ask Andy to take the third one. So in terms of sort of where, I mean, clearly carbon prices in Europe and the UK have come down from where they had been historically. My own view is that this will have to ultimately be set over time or we're not gonna get to the decarbonization targets that we've got. In terms of the specifics of how that impacts facts, I would say a couple of things. One of the developments we're seeing both in Europe and the UK is the desire to include specs and or carbon removals into the emission trading schemes. And that's work that's ongoing. Fundamentally, I think that's where the world needs to go because at the end of the day, if you remove a ton of CO2 as opposed to adding another one into the environment, those are both sort of positive things and have a similar impact. And having a system that allows decision makers and sort of economic participants to choose between the two in an economically rational way makes a ton of sense, right? So that's where we think it's going to go, right? In terms of the other, I think important to recognize that it's sort of another benchmark for where carbon prices are, or I would say more explicitly carbon removal prices are, right? We are seeing a lot of growing interest in a growing number of transactions in the voluntary carbon markets for BECCS and for carbon removals generally, direct air capture, for example. And we've announced deals in that space at $300 a ton. The direct air capture deals are being done in sort of $500, $600, $700 a ton. So at the end of the day, all of those markets will come together in order for us to get to net zero. The way we would position BEX in the UK is that fundamentally, you know, if we have a CFD for the carbon, that needs to be struck at a level which we think is consistent with the right level of returns for the project and consistent with value for money for the UK, and that will be sort of, that's the way it will get set. My expectation is that will be, you know, over time, consistent with where carbon prices will be. Second question, so in Viva, I guess I would say sort of two things. One is that I can't really comment on the or where they're at. I think it's sort of, I think what's known is that they are sort of, they're in a forbearance period relative to not having made some interest payments. I think the market has expectations of where that's going to go in terms of them, in terms of their future. The two things that we are watching quite carefully on, one is that our team has very much sort of managed our position in terms of biomass supply, such that we, I think, feel as though we're quite well insulated. Many possible sort of shortfall in terms of pellets that's come from them, that is fundamentally The consensus that you see for 24, 25 numbers includes the impact of those risks. I think we're quite comfortable with how we are managing that both operationally and financially. If and when they work to enter bankruptcy, I think two things will happen. One is I think that they will need to reprice many of their pellet sales contracts in order for that business to get to the place that it needs to be. As Andy talked about before, fundamentally we all have a an impact on the pellet prices in the market and sort of probably upward pressure as opposed to anything else, right? So two sides of it, one from our own sort of security of supply, we would feel quite comfortable in managing that. And then from the pellet sales perspective, I think it will have an impact on the fundamentals of that market and in a positive way for pellet production. The third one.

So on your question on system support, Charles, it was very high in 23. I think we did 245 million in total If you go back to 22, it was 175 million. And directionally, and we've said in the past, over recent years, if you've looked, it's grown double digit. So I think if you, you know, you should, that's the sort of range to think about. 23 was clearly high, but I go back towards 22 and then think about that kind of growth rate.

Very clear. Thank you.

The next question is from Ahmed Farman of Jefferies.

Yes, hi, thank you for your presentation. I just sort of have one question. You talked about, you know, sort of expectation to sort of reach an outcome on the bridging mechanism potentially by the end of this year. Could you maybe contextualize for us what would be the implications from a security of supply perspective if this was to sort of be delayed by six months or something like that. I'm just trying to understand how do we think of it from that side, how the urgency to get clarity on this. Thank you.

So maybe I'll talk about sort of three sort of different pieces. Fundamentally, it's about decisions that we need to make in terms of contracting in the supply chain, in terms of capital allocation, in terms of investing in the power station, and when and how we make those decisions. So in the first instance, we need to make sure we can have all the logistics that we need, port infrastructure, rail infrastructure, and at a certain point in time, the providers of those capabilities will need to make other decisions about those assets. So when I talk to my port providers, they are pushing us to make sure that we can make long-term commitments to them, because otherwise they'll need to repurpose those facilities and you know, you don't repurpose a port overnight, right? So that's the first thing I would say, right? Second thing in terms of actual pellet supply, right? The, you know, we talked about in V of other things, I mean, that market is increasingly, I think, will, you know, there will be increasing demand, we think. There's not a whole lot of new capacity coming into that market. And so in the first instance, sort of over time, we expect pricing to rise, as we've, I think, talked about quite explicitly. And that's, So from the point of view of ourselves, the UK government, the sooner we can get an agreement in place that allows us to sort of lock in our pellets at a good cost, it's a value for money point, which I think is quite important for the whole system, right? At a certain point in time, as more time goes by and pellets become less available, it becomes difficult for us to guarantee because that's a big part of the overall market, right? The third thing is in terms of sort of people contracting investment in the plants, because every year, let's say in the late summer, we are planning what we are going to do in terms of investing in maintenance and outages at the Drax power station, right? And, you know, this year, I think we, you know, some close calls as to whether you, you know, do you invest in things that will have a five-year payback, seven-year payback, three-year payback when those things are, you know, right now, you know, this year, I think we were, we made some reasonable decisions and we weren't pushed that hard, right? When we get to this point, let's say summer of this year, those decisions get harder, right? Because it's very difficult to sort of make an investment with a payback of five, 10 years on the basis that you don't know where the power station is going to be, right? So fundamentally, sort of the more time passes, the more these decisions go by, the more difficult it is for us to make sure that we actually have the power station that we need to provide the services that UK system benefits from.

Thank you.

That was the last question from the conference call. May I turn it back to you, Mr. Gardner, for any web questions?

Yes. I'll start with one from Vincent Chin at Lloyds Bank. What are the uses for 2024 loan term facilities, 258 million, noting that they are undrawn? That's Randy.

So the intent would be to use them to pay down the 2025 bond maturities. And actually, if you look at the slide on page 14, You can see the undrawn piece in there, the last two columns, and you'll see the large swap of bonds that expire at the end of 25. So that will give us good opportunity to make good headway into reducing that. And as I mentioned, both of the bonds are redeemable at or close to half.

So a question from Jenny Ping at Citi, and sort of three parts to this. First, can you please help us understand the biomass cost evolutions going forward? I'm going to interpret that in two ways, and I'll pass this to Andy. One, I'd like to talk a little bit about our own cost base within pellets. We can talk a bit about that. I think we answered that question somewhat in terms of the future cost of biomass at the power station. I think what Andy said, sort of 100 pounds plus per megawatt hour is a good way to think about it. You said earlier some of the third contracts are expiring. Please provide timing and scale of these. I think this is probably a reference to actually how we see some of the third-party pellet sales contracts evolving in the sort of the Japanese market. And maybe Andy can talk about that because it's probably less about expiring, but more about the potential for repricing some of those. We can talk about that in a sec. And the third part of the question is, where are we on the GBB, the pound hedging for the pellet business, where I think Andy said we're well hedged through the end of the subsidy period with our pellet business. So do you want to take and do it on the first and the second, Andy?

Yeah. I think on the biomass cost, Jenny, we're still focused on opportunities to reduce the cost of our production, but I would focus on the margin. So we're expecting when we forecast the 250 million that the margin stays around where it is today. other than for those legacy contracts where we can extend it to that kind of margin. So we're not assuming significant cost reductions in achieving that number, but equally we're not assuming significant sort of price inflation from where we are today. We've effectively kept the margin at what we believe is an appropriate level. On the second one, the third-party contracts, there's around a million tonnes of those expire over the next Five years, different dates, and more beyond that. And again, as they renew, we expect that we have the chance to improve the margin. And then on the GBP hedging for the pellet business, I mean, on the Drax power station, it's hedged for five years forward now, and we're pretty much fully hedged through end of 27, start of 28.

So I don't see any more web questions or anything else from the call.

At this time, sir, there are no questions registered from the conference.

Well, thanks, everyone. I appreciate your sort of attention as we went through what we think are these sound, if not exciting, I would say exciting fundamentals of our business and look forward to sort of following up with you guys over the next days and weeks. So thanks very much.