Drax Group plc

Thank you and good morning, everyone. Welcome to our first half 2024 results call. I'm starting on page three. I'll start with our purpose, which is to enable a zero carbon, lower cost energy future. And I always like to do that because it guides fundamentally everything that we do. And we have a business model that aligns shareholder returns with positive outcomes for nature, the climate and people. And critically, our people are at the heart of Drax. We want everyone to feel a valued member on a winning team with a worthwhile mission. Turning to page four. We had a strong first half of the year. And again, as I always like to do, I'll start with safety, which is again at the heart of everything that we do. We pay a lot of attention to safety all the time. It's not really about the statistics, it's about the culture that we are trying to build. But the statistics do tell a story. And compared to last year, we've had significantly fewer incidents. And our TRIR has reduced from 0.47 last year to 0.24 this year. But as we all know, keeping people safe is something we need to do every day, and it's a never-ending battle. Financially, we've seen a 24% increase in our adjusted EBITDA, a 43% increase in earnings per share. So strong financial performance. We continue to deliver returns for our shareholders and we're expecting a 12.6% increase in dividends per share. And we're announcing today a 300 million pound two-year share buyback program, which we expect to start in the third quarter of this year. To enable that during the first half of the year, we significantly strengthened our balance sheet. We've raised greater than 680 million pounds in new facilities that mature in 2027 and beyond, at attractive rates that reflect the market's increasing competence in our long-term business. And with those proceeds, as well as with cash, we've repaid about 950 million pounds of shorter-dated facilities. I'm very excited about our FlexGen and Pellet businesses, which we began to talk about significantly more about at the year end. Both of those are targeting more than 250 million pounds of EBITDA in the long term, and both of them have strong first halves. We've also had great engagement with the new government. I'm excited about the potential for the bridge, about BECCS in the UK, and also about expanding Quirkin, all of which we believe are critical for enabling the government's ambition of delivering a net zero power system by 2030. And finally, the global market for BECCS and for CDRs continues to develop well, as does our own team and plans for delivering that in the US. And I move on to page five, please. So in February, as I mentioned, we began to talk about our business a little bit differently, and I want to share or reiterate that story again. So we have two businesses that we are highly confident will generate attractive returns long-term. come what may. One of them is the flexible generation energy solutions business, and the other one is the pellet production and sales business. For both of them, we're targeting more than 250 million pounds of EBITDA in the long term. Our biomass power generation business, as we all know, is somewhat different. We expect it to generate greater than a billion pounds of operational cash flow between 2024 and 2027. And importantly, it has a very important or key role long-term in the UK power system. And I'm again very encouraged with early engagement we've had with the new UK government. We recognize that importance. It was reiterated by National Grid in the future energy scenarios that it published recently in which all three scenarios have a significant role for biomass power generation as well as BECCS. So we look forward and are working closely with the government to make sure we get the right decisions from them and the right public signals by the end of the year to enable us to make the investments that we want to make. And beyond that, we have other attractive investment opportunities in Crucan II, which again, as the government ramps up its ambitions for more wind power offshore, onshore in Scotland, we believe that pumped storage is going to be ever increasingly important to enable that wind to play its proper role in the system. We have exciting opportunities to expand our pellet business as we get more long-term committed contracts. And we're again excited about delivering VEX in both the US and the UK. And once we have the right long-term certainty to support both of those activities. Turning to page five. Each of our businesses performed well in the first half of the year as we grew EBITDA by 24% over the first half of 2023. And each of our businesses is on track to deliver its long-term targets. And I'm going to let Andy take you through that when he gets to the section on our financials. I'm going to go straight through to page seven now. So we expect to generate 250 million pounds of EBITDA in the long term through the cycle from our FlexGen and energy solutions business. And as you know, it consists of pumped storage, hydro, our open cycles, and Drax energy solutions. We increasingly think of Kruken2 as part of this portfolio. It's an exciting opportunity to grow our flexible generation business, and we'll talk more about that in a minute. And we also believe there's opportunities to expand further in this market. I mean, just think about the market opportunity, think about the skills and capabilities that we have, and we look forward to looking for further opportunities to grow in this space. Turning to page eight. So you all in the market in general have been asking for a bit more granularity about what's driving our strong performance in the flex generation, specifically in pump storage and hydro. And we want to try to give you that over the course of the next few pages. So on this page, you see two graphs. The one on the left shows the growing cost of managing the system in the UK. And effectively, what we see over the last sort of six or seven years is a 18% growth in the costs of growing that system. On the other side of this chart, you'll see the growth in our earnings. from pumped storage. And what we've done is we've split out the earnings that come from forward power sales or effectively dependent upon higher power prices as they were in the first half of 23 and 24. And again, you can see about 18% growth there as well during that period. So our earnings are fundamentally driven or the growth in our earnings fundamentally driven by the increasing costs of managing the system. If I give you a bit more details on that on the next page, page nine, you can see a little bit of what's been driving that. So on the upper left, you can see the growth in the terawatt hours from offshore wind, again, strong growth. And again, we expect that to continue as the system adds more wind power to it. On the right, this is one signal or one example of how this volatility is increasing is the hours of negative pricing. And you can see those are growing very significantly as well, right? And those are all, those create the need for Krookin to run and they create opportunities to create value from pump storage. So on the bottom of that page, you see, again, we sort of show what actually then has happened at Krookin. So we've generated more, we've pumped more, and we've operated a significantly further amount of the time. Now, there are other pieces of this story that, again, you're all familiar with, the decline in other forms of large-scale dispatchable thermal generation, the increasing amount of volatility that that all drives. So there's lots of positive elements. And all of that, or all of the drivers that we've seen for the last four, five, six years, we expect to continue and accelerate over the next decades as the system becomes more dependent on sort of intermittent renewable power. And for those of you who want more detail, we've got additional information from the National Grid's future energy scenarios included in the appendix. Finally, on page 10, we're excited to be continuing to invest in the FlexGen business. As we announced last year, we are refurbishing and expanding two of the units that we already have at Krookin. It's an 80 million pound project. It will add two times 20 megawatts of power or power generating capacity. That is all underpinned by more than 220 million pounds of capacity market revenue over 15 years. in addition to the 60 million pounds of existing one-year agreements that we have for Kruken. We also, as you know, have the option to expand Kruken 2. It's a 600 megawatt expansion, as you know. Just as a reminder, we have received our planning permission. We're in the midst of doing detailed design works. We expect clarity from the government on the cap and floor mechanism that support long-duration storage next year. enabling us to make a final investment decision in 2026 and be online again in 2030 to help enable the UK government's ambition of delivering a net zero power system by 2030. The project that we are actually delivering now in the UK on page 11 is the open cycle gas turbines. We expect to be commissioning the first of those later this year. They're also underpinned by 270 million pounds of capacity payments We have had challenges with the timing of these projects and getting our grid connections online with National Grid. So there is still some risk to the timetable on a couple of those units. But fundamentally, we're very excited about these assets. They're completely consistent with the market drivers I've just been discussing. And as you know, we're continuing to evaluate options for them, whether we keep them or whether we sell them. Let me make it clear that whatever we do with them, It needs to be consistent with our ambitions, our own decarbonization ambitions, which you all know to be carbon negative by 2030. And the final piece of the energy solutions business is our customer business, which is performing very, very well. There's two pieces to this. There's the SME piece of it, which I'll just quickly remind you, we've announced earlier this year the sale of 90,000 customer meters in that space. We're exiting that business, following a strategic review, and we're in the midst of an employee consultation process that will reflect the reduced size of that part of the business. But we're very excited about what remains. That business is a low-risk business with large, high-quality credit customers. It's a business where we don't take power price risk in any significant way. Part of it is supply of power, but part of it is also It comes from Opus as well, which is the part of it is bringing to market smaller scale renewable generators. We have an attractive PPA business in that space. And we're making very good progress in growing new parts of that company. So we, as you know, we bought PPMM, an EV installation business last year, and they continue to win new customers. For example, we've just begun a new long-term partnership that will see Drax delivering EV charging infrastructure for Kier. So again, very excited about that part of the business. Moving on to page 13. So as I've said, we're also targeting greater than 250 million pounds in the long term for our pellet production business. We made good progress in the first half of the year. We increased our output from 1.9 to 2 million tons, and we improved our margins. And we're also increasing capacity with the expansion of our Aliceville site, as well as the new project in Longview in Washington state. We're currently working through our air permit process there to make sure we have the right permit that allows us to have a simple but robust regulatory framework. We're increasingly encouraged by the development of third-party sales opportunities, both renewing legacy contracts at attractive prices, as well as entering new markets, including SAF. In the biomass generation space, Drax Power Station, which for a long time has been at the core of the company, will generate greater than a billion pounds of operational cash flow in 2024 and 2027. And much of that, as you know, is underpinned by strong forward power hedges, the CFDs and the ROCs. But it also depends on strong operational performance from trading and optimization, generation, logistics, and pellet productions. And our capabilities in that area underpin the crucial role that DPS plays in UK security of supply. Turning to page 15. The UK needs the Drax power station for security of supply. As I mentioned, National Grid's future energy scenarios have made that very clear. All of its pathways rely on DEX as well as biomass power generation. And we've had very good engagement with the new government on making sure that we're working together to deliver the signals that we need by the end of the year to deliver the investment that will enable us to be a key part of that 2030 net zero power systems. So frankly, given the delays that have happened in the government thinking to date, we can't really wait much longer. We are looking at other options, but we're most excited about investing in the UK. Finally, on page 16, We have attractive options for growth and our ambitions remain the same as ever to do BEX in the UK, to do BEX in the US, and to have our first sites online by 2030. And we're actively building our team in the UK, sorry, in the US, looking at our first sites there, and I've already talked about the UK. So with that, I'll turn it over to Andy to give you a bit on the financials.

Thanks, Will, and good morning, everyone. So we'll start with a financial summary on slide 18. We've delivered strong financial performance, strengthened our balance sheet, and we're announcing additional returns to our shareholders. The adjusted EBITDA of 515 million grew 24% over the prior period. This reflects a strong renewable power generation and system support performance across the portfolio, as well as an improvement in the pellet business with an increase in production volumes and the achieved EBITDA per tonne produced. We've made considerable progress with refinancing activities, extending the group's debt maturity profile beyond 27, and we expect to increase the size of our RCF and extend its maturity beyond 26 during the third quarter. Last week, we published a company-collected consensus for the full year, and reflecting strong first half performance and expectations for the second half, we're comfortable around the top end of the consensus range. subject to continued good operational performance. Our closing net debt of just over 1 billion gives leverage of sub one times on a last 12 months basis. This strong financial performance is generating cash flows, which is supportive of our capital allocation policy. They position as well to invest in our core business, progress strategic growth plans and support sustainable and growing returns to our shareholders. Consistent with our policy to pay a dividend which is sustainable and expected to grow, the board has resolved to pay an interim dividend of 10.4 pence per share and expect this to be 40% of a full-year dividend of 26 pence per share. This represents an increase of 12.6%. We are also announcing a £300 million two-year buyback programme to commence in the third quarter. So moving on to slide 19 to look at the strong financial and operational performance in the first half. Starting with FlexGen and Energy Solutions, where we delivered adjusted EBITDA of 98 million in the period. As Will noted, system support earnings in pump storage hydro have grown at a five-year compound growth rate of 18%, broadly in line with the increased cost of managing the system. In the first half, FlexGen EBITDA from system support totaled 60 million, with the remaining 16 million related to forward power sales. In the prior period, earnings from forward power sales of 75 million reflected higher captured prices and a higher volume of hedges. In energy solutions, we recently announced the sale of the majority of the customer meters in our non-core SME business. The SME loss of 14 million reflects a high fixed cost base, serving a reduced customer base following the decision to exit gas supply in the first half of 23. Our INC business continues to perform well, with earnings of 36 million up over 30% from 27 in the prior period. In pellet production, the adjusted EBITDA grew 50% to 65 million with increased production volumes and an improved EBITDA per tonne produced. Our earnings from biomass generation grew over 70% to 393 million, reflecting a 32% increase in generation volume to seven terawatt hours in the period and an increase in captured power prices at Drax power station. So moving on to slide 20, I'd like to walk through in more detail how performance in the period is supportive of delivering our target future earnings. So firstly, in flex gen and energy solutions, adjusted EBITDA for pump storage and hydro of 76 million includes 7 million pounds of EGL payments, which will cease in 28. That suggests a simple annual run rate of 160 to 170 million. The 40 megawatt crew can upgrade, which will complete in 27 is underpinned by capacity market payments totaling 220 million or 15 million pounds per year from 2027. We also expect incremental earnings from the additional 40 megawatts of capacity. Taken together, this is supportive of greater than 150 million of recurring post 27 earnings from hydro and pump storage. Our INC Energy Solutions business continues to perform well. We see further opportunity for growth in energy services with the recent acquisition of BMM Energy Solutions, an installer of electric vehicle charge points, which strengthens our end-to-end EV charging proposition. With the agreement for the sale of the majority of our SME customer meetings, Meeters, earnings from the INC business alone are supportive of greater than 50 million of post-27 earnings from energy solutions. The first OCGT asset will start commissioning in the fourth quarter. Grid connection timelines have pushed commissioning dates for the second and third assets into 2025. But earnings from the OCGTs that have combined capacity of 900 megawatts underpinned by 15 year capacity market contracts totaling £275 million or £18 million per year. The remaining earnings from these assets will come from system support services and peak power generation. An exercise to back cast the value of these assets over the three years from 21 to 23 showed that on average they would have contributed earnings of greater than £70 million per year. The increasing need for flexible dispatchable assets, the increasing cost of balancing the system, and the strong underpin from capacity market payments are supportive of 50 million of post-27 recurring earnings from the OCGTs. As Will noted, we do continue to assess options for these assets, including their potential sale. Slide 28 in the appendices provides details of the already secured capacity market contracts for this portfolio. In the period to 2042, they total almost 600 million. It also shows the annual value of capacity market agreements growing significantly with the additional agreements for crew can expansion and the OCGTs, but also an increase in the clearing price from the 18 pound in the 24 numbers The total value of capacity market payments would grow to around £850 million if you use an illustrative £35 clearing price for future auctions. And these values are in 23 terms and they're subject to indexation with UK CPI. Overall, we consider current performance together with these future developments is supportive of delivering greater than £250 million of recurring post-27 earnings from FlexGen and Energy Solutions. Moving to pellet production, we're targeting 250 million of recurring post-27 earnings. These targets are based on reaching 5 million tonnes of production and require increased output from our existing plants and the addition of new capacity. During the period, our production volumes increased to 2 million tonnes, including a small benefit of the Aliceville expansion, which commissioned during the period. The full run rate of this expansion together with the development of our Longview pellet plant will add around 600,000 tons of production. So with improved output across our existing plants, we're continuing to target this future production of 5 million tons. Our current third party sales book includes a portion of legacy contracts that were signed when market prices were lower. And while price escalations apply, cost inflation has reduced margins over recent years. Around 1 million tons of these contracts expire over the next five years. And we expect to expand our margin on renewal or on the sale of these volumes into existing markets or sale into new markets, which is well noted includes sustainable aviation fuels. Market forecast show growth in demand as markets such as BEX and SAF develop. And we believe our pellets have increasing value and we have a healthy pipeline of opportunities. In biomass generation, our RO units are fully hedged for 24 and 25, with over 20 terawatt hours locked in at attractive prices. We expect the CFD unit to run at a high load factor for the coming years, subject to securing the biomass. We also anticipate additional longer term value at Drax Power Station from the bridging mechanism, BECCS, and other opportunities. So turning to slide 21 and the balance sheet. We maintain a strong focus on cashflow discipline and maintenance of a robust balance sheet. Year to date, we've signed over 680 million of new facilities with three to five year maturities and repaid over 820 million of 24 to 26 maturities. As a result, our weighted average maturity date is now in the fourth quarter of 27. Our available cash and committed undrawn facilities of 515 million provide substantial headroom over our short-term liquidity requirements. Our 300 million ESG linked revolving credit facility provides further committed liquidity out to 26. No cash has been drawn on this since inception. And as I noted earlier, we expect to refinance it in Q3, increasing the size and extending the tenure. Net debt to adjusted EBITDA significantly below the group's long-term target of around two times. On the last 12 months basis, our leverage ratio at the end of the period is around 0.9. During the second quarter, our credit ratings were affirmed as BBB plus by Fitch and S&P and as BBB low by DBRS with a stable outlook in each case. And finally, cash generated from operations of 400 million in the period is broadly in line with the prior period, despite a working capital outflow of 93 million. So slide 22, I'm looking at capital investment. With capex spend of 147 million in the first half, we now expect capex to be in the range of 360 to 400 million for the full year. Growth capex of around 270 million includes the OCGTs, Longview and the Crookham 3 and 4 refurbishment projects. Our maintenance capex of around 100 million for 24 is lower than in 23, primarily reflecting that there was one major planned biomass outage compared to two last year. The major planned outage is progressing well and Unit 3 is expected to return to service in August. Other CAPEX includes investment in systems, controls and processes to support continuous improvement and compliance. The first of our three OCGT projects will commission in the fourth quarter. And as I noted, commission of the remaining projects is delayed into 25 due to delays in the grid connections. The construction of Longview will continue throughout the year and expected spend is reduced as progress is slower than anticipated as we proceed with air permitting processes. There's no change, however, to the expected medium-term volumes or profit targets for pellet production. We expect around 30 million of capex on Kroeken 3 and 4 this year, with total capex on the project around 80 million. The investment's underpinned by 220 million of capacity market payments through 2042, along with earnings from power generation and system support services. We continue to carefully manage our further investment in UK BECs, pending additional clarity from the UK government. So on to slide 23, and capital allocation. Our capital allocation policy launched in 2017 and remains unchanged. Strong financial performance and cash generation is supportive of maintaining our credit ratings, paying a growing and sustainable dividend, but it also positions as well to invest in our core business and progress strategic growth plans in the UK and globally. Our policy is to pay a sustainable and growing dividend. And over the last seven years since the policy commenced, dividend growth has averaged 11%. Timing of capital deployment is a key consideration when we think about the fourth leg of our policy, which is to return surplus capital to shareholders We have attractive options for long-term growth in BECs and pumped storage, but final investment decisions are targeted for 26. We will continue to consider other investment opportunities which are complementary to our portfolio. But with high quality operating cash flows underpinned by a strong hedge book and leverage already below our long-term target of two times, we will return a further 300 million over the next two years through a share buyback programme that will commence in the third quarter. With that, I'll hand back to Will.

Thank you, Andy. And just to wrap up on page 24. So we had a very strong operational and financial performance in the first half of the year, which supports the improved outlook that Andy has described for the rest of the year. We're increasingly excited about our FlexGen and energy solutions, as well as pellet production businesses, and are targeting greater than 500 million of recurring adjusted EBITDA into the 30s. Our biomass generation business will deliver very strong cash flows, greater than a billion pounds of operating cash flow over the next three years, and has a very attractive and important long-term role in the UK power system. And we're, again, increasingly encouraged by our early engagement with the new government. As a business, we have long-term options for growth, whether that's in pump storage, whether that's in vaccine, whether that's in pellets, all of which are aligned with our purpose of enabling a zero carbon, lower cost energy future, as well as the energy transition and enabling security of supply here in the UK. And finally, we take a disciplined approach to capital allocation. We significantly strengthened our balance sheet. We continue to invest in our core business and our growth opportunities while delivering a sustainable and growing dividend to shareholders. And we've announced again today that we will be beginning shortly at 300 million pound share buyback. With that, we're happy if you take any questions.

Thank you. If you wish to ask a question, please press star followed by one on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by two. When preparing to ask a question, please ensure that your phone is unmuted locally. You can ask a question in written format via the webcast platform. Your first question comes from Pawan Mahbubani from JP Morgan. Please go ahead.

Hi, Tim. Good morning. Thank you for the presentation and for taking my questions. I've got three, please. Firstly, I think the question on everyone's mind is on the 300 million buyback and thinking around it. both the quantum and the timing of this, you know, why have you done it now? Is this related to, you know, your successful refinancing? Is it to do with delays of, you know, spend on VEX? Or indeed, are you more confident around that? Is it to do with an OCGT sale? So any incremental color you can give around the thinking of why you've done the buyback and why you've done the amount you've done today would be very helpful for you. My second question is linked to the first, but in terms of your discussions with the Labour government, how confident are you that we're going to get news on the bridging mechanism this year and any insight you can give on conversations with the new energy minister would be helpful. And then finally, in terms of options for Drax Power Station, if, for example, the UK government veers away from a bridging mechanism or VEX, I believe that's unlikely, but Are you in conversations with hyperscalers, for example, data centers? Is that a potential source of offtake in the UK for Drax Power Station if you don't make an agreement with the government? Those are my questions. Thanks.

Thanks, Pavan, and I'll take those in turn. So on the buyback, it's very much the outcome of the board applying our capital allocation policy as we always do. As you know, we sort of completed our last buyback, I guess, middle of last summer. And at that point in time, we basically then turned our attention to making sure we had a balance sheet that was rock solid come what may. And Andy and his team have done a fabulous job of putting that in place. Really, the amount of refinancing activity, the attractiveness of it, the confidence that the debt markets and the capital providers have in business has been, I think, very gratifying to see. And we now have a position where we're comfortable, frankly, with or without a bridge, that we are in a very strong balance sheet position come what may. Having done that, again, we've looked at our investment opportunities. As we know, through FID on, frankly, Brooklyn 2, BEX UK, BEX US are sort of late 26, 27. And given the amount of capital that we expect to generate over the period before that, we felt like if we were gonna be consistent with our policy and as we would like to always be, that returning capital to shareholders is the right approach to take. So I guess what I wouldn't say, it's not related to the open cycles, for example, we still need to commission those. Once we have those commissioned and good evidence of operating performance, we will then again, look at what the best option is for those, but that's something that's yet to come. On the labor government, you know, Frankly, the first key item there is that having a 2030 net zero power system is one of their five primary objectives is very important. And as Grid published in its future energy scenarios, that's not possible, we don't believe, without the Drax power station or without BEX at Drax. Our team has been working with officials, frankly, for some time. They continued working through the election cycle with them. to make sure that we actually have the structural pieces, the information required, the understanding of how both the bridge and VEX will work so that actually there's the right amount of time available to get those done by the end of the year. So that's absolutely still happening. My early engagement with the energy minister has been very positive. And frankly, I mean, he is passionate about a net zero 2030 power system. I am also passionate about delivering a net zero 2030 power system. There are lots of people who say that's difficult and it will be difficult. So the urgency is frankly to the government because if they want to get that done, we need to start moving, right? And so the simple point is they know what we need to do. They know that we need more clarity by the end of the year and they know actually that we're eager to be part of it. So I'm excited about the likelihood that that happens here. And the final point on data centers, I mean, the world is excited about AI, right? In good ways and other bad ways too, right? And there's lots of stuff happening in that space, right? But the demand for power is indisputable, right? And the demand for 24-7 green power, even more so, right? So if we think about BEX as a technology, it is absolutely ideally suited for supporting that. It's 24-7 green. Renewable power is not intermittent. It doesn't require structuring to make it 24-7. It just is, right? So that's part of it, having the land available to deliver that, having tooling available to deliver that, being close to fiber optic cable networks. The Drax power station has all those things, right? That doesn't mean we don't need to work with the government for a bridge. We're a long way away from anything that might happen in terms of a data center, but it is something that we think we should be exploring both here in the U.S. Sorry, here in the U.K., but also in the U.S. But frankly, that is completely, does not in any way take away the need for the bridge, and that's important for us too.

That's very clear, thank you.

Thank you. Our next question is from Dominic Nash from Barclays.

Please go ahead. Good morning, everyone, and thank you for your presentation. Very helpful. So three questions from me, please. The first one's kind of following on from Paran's question over the amalgam, the buyback and the timing of the sort of bridging mechanism, baked negotiations with the government. Do you think the timing of the £300 million buyback provides a signal or Could it be seen as being detrimental in any way to negotiations with the government that your capital is potentially not necessarily going to be going into capital projects here in the UK that you have choice? The second question I've got as well on here is on the bridging mechanism itself. When do you think you're going to start to put numbers in as to what the level at which the new CFD is likely to be struck at. And if you don't have that number yet, how would it be best for us to think about the number that you will be getting towards, i.e. what sort of spread or return or fuel costs that you'll be looking at to come up with a bridging mechanism number. And thirdly, I was interested in your slides on the way that the balancing mechanisms are moving and that your flexible generations is increasing going forward. Do you ever feel for when you think we get to peak year for flexible generation? When do you think the point will be when the new technologies, when batteries, when demand side management, et cetera, et cetera, start to come in? to a level to offset the increased volatility of the intermittent renewables. When do you think we're going to get to peak here? Thank you very much.

Thanks, Dominic. Probably quite quick responses to that. So I'm not in the business of signaling to the government through analyst announcements or media. I'm very open and honest discussions with them about what we're doing. And the key point is that we are central to the system. We want to make a net zero 2030 power system work and we're committed to doing that as long as we have the right setup and signals from the government to do that and we have very straightforward discussions and we're working well there. The second point is we are going to be in discussions with the government about what the numbers on the bridge look like and I think it wouldn't be a good idea to sort of speculate on those publicly. The one thing I would say is that as a As a multinational group, our appellate business is fundamentally independent and a standalone business relative to the UK power generation. And so whatever fuel costs that we have included in a deal needs to reflect the market price appellates because that's the alternative that we've got. And as we've said, we have very interesting discussions going on about both extending existing contracts at market prices, and we are doing that, as well as entering new markets at attractive prices, right? And finally, I think the key point for me about sort of intermittency is that the demand-side response, batteries, long-duration storage, those are all ways of supplying intermittency into a market where the demand for intermittency we see is growing, and we expect that to grow continuously for a long time as the market, as more offshore wind and more intermittent renewables come on the system, right? Key thing about long duration storage is that, sorry, the way we see the market for intermittency is it's segmented by time, right? And batteries are good at delivering very short term stuff. Home storage is much more attractive at delivering, you know, long term. So, you know, maybe one or two hours, three hours maybe for batteries, you know, four, eight to 16 for long duration storage, home storage. So we see those as different markets, and frankly, the attractiveness of that market should continue to grow. And frankly, the opportunities for us to be involved in multiple pieces of that market are also interesting. If we build an EV charging business, we have an electric assets business where we help manage customers in demand-side response. That's equally an opportunity for us, and batteries is something we would also look at.

Thank you. The next question comes from Alex Willow from RBC. Please go ahead.

Hi, thanks. Three for me as well, please. Just on the dividend, how should we be thinking about the dividend growth going forward given the 12.6% growth guidance that you've given this year? Secondly, the 2027 target is clearly looking well-supported. Can you just remind us on the steps on the pellet production side, given there's a little more to do there than on the generation business? And then finally, just on the US BEX, the CDR market is clearly very important there. So I'd just be interested in any more color that you can give us on how you're seeing that evolving at the moment. Thank you.

Thanks, Alex. I'll take the first and the third. I'll ask Andy to comment on the two targets for 250. In terms of dividend growth, I mean, we don't have a progressive dividend policy, as you know. We have a policy where the board will look at the performance of the business, expected future performance, and every year we'll decide what the dividend should be. So in years that have been not as strong, for example, in the middle of COVID, we had a lower growth rate. In years like this one where we're performing well, we have a higher one, and that process will continue. So it would not be consistent with our policy for me to tell you about a projected number in the future. On the third one, the CDR market is evolving and growing in maturity. As you know, there was an interesting deal announced between Microsoft and Stockholm Exergy. Again, a long-term PPA or analogous structure to PPA, long-term commitment strategy. to pre-buy CDRs from that project, similar to the Orsted deal that they did last year. That's exactly the type of thing that we're looking for. We think that the market is increasingly appreciating the value of permanent geological storage and the importance of high quality in this space. And so the ones or other thing which people may be less sort of aware of is the government here in the UK is eager for It's for voluntary carbon markets to be included and embedded in some way in the carbon CFD that we're working on with them to support BEX. And again, we're having very exciting conversations with significant British players looking to build a British market for British-based CDRs as well.

Yeah. So on the pellets, I guess the first thing, the target's based off 5 million tons of production. So if you, we did 2 million and a half this year. So, you know, that would give you a simple run rate of around 4 million for the year. So we do need to increase production from our existing plants. So across the 17 plants that we already have. But we also have the expansion project. So the Aliceville expansion is complete or commissioned. Not much volume in the first half, but you'll start to see that run rate in the Longview project. And together they add 600,000 tonnes. So effectively you need You know, the remaining 400,000 from across the 4 million of production we already have in our existing portfolio. And there's opportunities there to invest in and improve performance to get that output. So I think we're confident in the ability to deliver the 5 million tons. The second part of it then is the EBITDA per ton that we produce. And in the first half, that was over 30 pounds. I think we had said at prelims that 23 was not the year to sort of baseline off. It was better looking at 22 and the performance first half is consistent with that. But that £30 reflects a higher margin on contracts that were signed more recently and on the intercompany sales to Drax Power Station, but a lower margin on these legacy contracts. And a million tons of those legacy contracts renew over the next five years. And as they renew, we will either recontract them at a market price or we have opportunities into these new markets that we've talked about to sell those and get a market price. So the price we need to get on those renewals or new markets is consistent with the market price we're already achieving elsewhere. And if we do that in five million tons, then we'll deliver 250 million.

Okay, thank you.

Thank you. The next question is from the line of Harrison Williams from Morgan Stanley. Please go ahead.

Hey, morning. Thanks for taking my questions. A couple from me. Firstly, on the OCTs, can you give a bit more color on what's caused the delays? I think you mentioned bridge connections. And then secondly, given these are on capacity market regimes, is there any penalty to that delay? So that's the first question. The second, coming back to the pellet margin and the improvements, can you give us any sort of phasing of those one million of contract expiries? And also when you say a market margin, is that the £50 per tonne or is it slightly higher than that to kind of rebalance the book. And then the third question, a final question from me, on regos in the UK, what are you seeing on kind of latest prices? What are you expecting for that going forward?

Thanks. Thanks, Harrison. So I'll take the first and third, and Andy will do the pilot one again. So on the open cycles and delays, I mean, frankly, each one of those needs both a gas and a power connection, and we are really working through getting those lined up with grid. They're not necessarily straightforward, and I'm sure, I know they're doing their best, and we're working closely with them and make those things happen. In terms of the CM regime, there's no penalty, but you don't receive CM earnings if you're not able to demonstrate you are available. On the third question, Regos, I mean, clearly they were extremely high prices over a year ago. Those have come back down and we can expect them to continue to have attractive prices going forward.

On the pellets, the 50 pound is consistent, we believe, with the market price. And if you look at the 30 it peed in the first half or just over 30, you know, some of those are at the market price and the legacy contracts below. And so, you know, you can sort of do the maths. I'm not going to guide you to what we make on each, but if 30 is the average and some are at 50, some are clearly lower. And then when they get back up to the £50 price on renewal or sale into new markets, I think you'll see you can bridge that gap. That's great. Thanks.

Thank you. The next question is from the line of Adam Forsyth from Longspur Research. Please go ahead.

Thanks. Morning, everybody. Two questions from me, both really on Crook and on the FlexGen business. following the changes in the balancing mechanism rules, there's been a lot more battery participation in the balancing mechanism, and I'm just wondering if that's had any impact on your revenues, if it's cannibalizing any element of your revenue stack, and related to that, whether you've changed bidding behavior in that market as a result. And then just looking forward, your comment, Will, just kicking off, I think you talked about looking for further opportunities in the space, in the FlexGen space generally, There's a lot of pumped hydro projects out there under development, I think over 10 now. Is that the sort of thing you'd be looking at? And would you be looking at partnering? Would you accept a partnership project in that area? Or would you be looking for absolute ownership? Thanks.

Thanks, Adam. So, yes, clearly the balancing market changes have resulted in more battery participation, especially as I mentioned before, in the short end of the market. You know, we will, you know, our bidding behavior will be based on the economics and the rules as it always has been and always will be. And frankly, again, I think the point I made before about our position being more in the longer end of the market, I think that we're excited about the ongoing opportunities there. In terms of other projects, you know, pump storage, we've got, I think, our hands full, to be honest. I mean, it's 650 Megawatt expansion of Krukin 2, that's a big piece of our portfolio. So, frankly, we're looking at other options that might round out the portfolio is probably more where we would be looking.

Great. Thanks.

Thank you. The next question comes from Ahmed Furman from Jefferies. Please go ahead.

Hi. Thank you for taking my questions. And congrats on a strong set of results. Maybe I just wanted to ask a couple of quick questions. Could you give us a sense of some guidance on biomass load factors of production volumes for the second half? Obviously, you've had a strong year-on-year improvement with 7 terawatt hours. Is that a run rate we could look towards for the second half? Secondly, anything on any sort of latest thoughts on be often investigation and the timing around that and any perspective around how, you know, we should sort of potentially think around range of outcomes there that would be very helpful. Thank you.

Thanks Ahmed. So I think the first one is I would expect, you know, at least from what we can see now and the generation profile, sorry, profile for biomass generation in the UK should be broadly similar in the second half as it was in the first And on Ofgem, we continue to work in strong collaboration with them to make sure we can resolve that investigation and that is ongoing.

Okay, thank you.

Thank you. Ladies and gentlemen, that was the last question for today. I would now like to hand the conference back to Will Gardner for closing comments.

Thank you all. I appreciate your time and wish you all a good summer. Thank you.