Drax Group plc

Thank you, and good morning, everyone. Thank you all for joining the call. I'm going to provide a short introduction and overview, and then I'll hand over to Andy, who will take you through the numbers and some of the operating points. And then I'll come back to talk about some of our investment opportunities and more about capital allocations, and we'll finish up the questions. Now on page three. You're all familiar with our purpose, which is to enable a zero-carbon, lower-cost energy future. I'll start with that as I always do, as it guides fundamentally everything that we do. Our strategy and business model are designed to deliver attractive returns for shareholders while realizing that purpose. We have a strong core cash generated business that has a track record of achieving those joint objectives. And looking to the future, we have opportunities to invest in that core business to enhance shareholder returns, as well as deliver positive outcomes for climate, nature, and people. And critically, our people are at the heart of DRACS, where I want everyone to feel a valued member on a winning team with a worthwhile mission. Returning to page four. We have had a strong year. Good safety performance is critical in its own right, and also underpins good operating and financial performance. So I was pleased at our total recordable injury rates, reduced in 2024 from 0.38 in 23 to 0.24. We produced 25% more power than we did in 2023, which combined with a strong improvement in pellet production has driven a 5% increase in adjusted EBITDA. We significantly strengthened our balance sheet, adding 700 million of new debt that matures in 2027 and beyond at attractive rates, which reflects the market's confidence in our long-term business. We use those proceeds to repay about $900 million of shorter-dated facilities. We're committed to shareholder return, and we're delivering those through the disciplined application of our capital allocation policy. We're announcing today a 12.6% increase in our dividends per share, and we continue with a £300 million share buyback, which reflects our belief in the value we see in the business. The recent CFD agreement for the Drax power station is a good deal for the UK, and I also think it's a good deal for us. And importantly, it reflects a significant inflection point for our company. So taken together with FlexGen and Pellet Production, we're today announcing an upgraded target for recurring adjusted EBITDA of 600 to 700 million pounds from these three businesses post-2027. which reflects our increased confidence in earnings visibility after 27. And we also remain excited about the opportunities for long-term growth, which are aligned with the energy transition and security of supply. And we will continue to commit appropriate development expenditure to those opportunities. And that expenditure is additional or outside that post-2027 target for flex-gen, pellet production, and biomass generation, which I just mentioned. The bottom line though is I want to emphasize our capital allocation policy. We're committed to attractive returns to shareholders and we will continue to deliver those. Turning to page five. Last year, we began to talk about our business differently and I want to reiterate that story. Flexible Generation and Energy Solutions is doing well and is already at the target level of 250 million pounds of EBITDA on a pro forma basis. And Energy Solutions earlier this month We agreed the sale of all of the residual SME meters, which will mean that that business will be based on INC renewable and EV solutions. This has greatly simplified that business. The business is doing very well with good performance in INC, and we have learned important lessons from that simplification process. Our pallet production business has had a great year, and we have confidence in the future, but recognize we have work to do to deliver that target. The CFD bridge agreement for Grax Power Station gives us confidence that we can deliver between 100 and 200 million pounds of EBITDA during the bridge period. And I'll provide more details on that in a second. So again, across those three businesses, we're now targeting 600 to 700 million of adjusted EBITDA after 2027. And again, I want to reemphasize that that target is stated before accounting for development expenditure for growth. which is the fourth column on that page, but we have attractive options, which we continue to believe offer significant opportunity for long-term value creation. In our FlexGen business at the Drax power station, which could accommodate both the data center and BEX, it's unique in the UK and having four gigawatts of grid access. And in the context of electrification and the rising demand for power, as well as its importance for energy security, affordability, and decarbonization, the so-called energy trilemma. We're continuing to assess options to create long-term value from the site. And of course, we're continuing to be very excited about the opportunities in global carbon removals, which we will be executing through Elimini, our new carbon removals business. On to page six. The agreement of a heads of terms for a CFD supporting post-2027 operations is a very positive step and an endorsement of the contribution that Drax Power Station and biomass make towards energy security and decarbonization, as well as being a value for money solution, saving bill payers billions over the term of the agreement. Under the agreement, we will sell the equivalent of about six terawatt hours ratably across the year to achieve the base load reference price and receive or pay the difference between the base load reference price and the CFD strike price, the so-called pop-up. In periods of high demand, we will actually use all four units to produce and sell as much power as possible at higher peak prices. And in periods of lower demand, we will add value by buying back power at lower off-peak prices. By operating in this way, we will help support energy security, provide flexibility to the power system, and earn a higher average price for power than the CFD strike price. We expect the system to become more volatile in the future as electricity demand increases and more intermittent capacity comes online, creating more opportunities for us to do more and to earn more. And we're planning to run some sessions for investors and analysts with our commercial team to help explain the mechanics of the agreement. The agreement also includes the continued evolution of sustainability standards. And we're very supportive of that. There has been some suggestion that to meet supply chain emissions targets, we would be required to buy more European versus US biomass. I want to be quite clear that that's not the case. And wherever we source from, we expect our supply chain to meet those emissions targets, and we are confident that it will. Finally, just to describe a bit the process from here, we expect government to lay secondary legislation, a statutory instrument, before Parliament in the coming months, which will give them the power to award CFDs to biomass generators. And subsequently, the agreement will be subject to a subsidy control mechanism process. turning to page seven. I'm sure you all have seen this, but I just wanted to emphasize and highlight the recent launch of our new sustainability framework. This is a very important, large-scale piece of work, which supports our commitment to develop and enhance our approach to sustainability across the three pillars of client, nature, and people. Please have a look at it. It includes substantial targets across those three areas and something that we're very committed to. And again, we plan to arrange sessions to run through this with analysts and investors.

Now over to Eddie. Thank you, Will. And good morning, everyone. Starting with the financial summary on slide nine. Once again, we've delivered strong financial and operational performance. Adjusted EBITDA grew 5% to 1 billion and 64 million, reflecting a high level of renewable power in the energy and system support activity. Our balance sheet is strong. We ended the year with net debt to adjusted EBITDA of 0.9 times. The business is generating significant cash from operations, which provides a strong foundation for investing in our core business and delivering attractive returns to shareholders. Cash generated from operations in the year was over 1.1 billion. The board proposed a final dividend of 15.6 pence per share. bringing a full-year dividend for 2024 to 26 pence per share, which is a year-on-year increase of over 12%. Last week, we published a company-collected consensus for 2025. We are comfortable within the consensus range, subject to continued good operational performance. Moving on to look at performance by business. In February of last year, we set out a target to deliver more than 500 million an annum of post-27 recurring adjusted EBITDA from our flex-gen and energy solutions and pellet production businesses. As Will's already noted, earlier this month we agreed a non-binding heads of terms for a CFD for Drax power station to operate between April 27 and March 31. Reflecting our expectations for that agreement, in the range of 600 to 700 million. This excludes investment opportunities which includes development expenditure and eliminate innovation and capital projects. Performance and pumped storage and hydro was underpinned by robust system support earnings. Our INC Energy Solutions business continues to perform strongly. As Will noted, the majority of the meter points in the SME business were sold in September 24, and last week we reached agreement for the sale of the remaining meter points. These will take effect from May of 25, subject to regulatory approval. In pellet production, we increased volumes and margin, and we delivered record levels of adjusted EBITDA. Strong performance in biomass generation reflects a 27% increase in renewable generation and the continuing role that Drax Power Station plays in supporting the UK power system. On to slide 11. We're continuing to target greater than 250 million of post-27 recurring adjusted EBITDA from FlexGen and Energy Solutions. And strong performance in 2024 is supportive of delivering that target. Our pumped storage and run-of-river hydro assets perform strongly, with increased generation output compared to the prior period. Our assets are well placed to support the system and capture value when there's pronounced changes in system need and commodity prices, like in the period between 2022 and 2023. Adjusted EBITDA in energy solutions of £51 million included £81 million of earnings from our INC business. Alongside supplying renewable energy, our IMC business provides EV and other value-added services, such as asset optimisation. These earnings reflect a consistent margin on contracted energy supply prices. And we expect earnings from EV and other services to grow over time. In total, FlexGen and Energy Solutions delivered adjusted EBITDA of £188 million. So taken together with our target post-27 earnings from our three new OCGTs of 50 million and capacity market income from the Kruken Units 3 and 4 refurbishment of 15 million, the illustrative earnings increased to greater than 250 million. The 80 million investment to refurbish and upgrade Units 3 and 4 at Kruken is on track. The project's underpinned by a 15-year capacity market agreement worth over 220 million. and they'll add 40 megawatts of additional capacity by 2027 and improve unit operations. Our three new build OCGTs are expected to commission in 2025, whilst later than originally planned, primarily due to delays in grid connection by the relevant authorities. These OCGTs will provide combined capacity of 900 megawatts and be remunerated under 15-year capacity market agreements worth over 250 million. And in addition, will earn revenues from peak power generation and system support services. We believe that retirement of older thermal generation assets and increased reliance on intermittent renewables, together with an increase in power demand, will drive a growing need for dispatchable power and system support services, and that this creates long-term earnings opportunity and value from the group's flexible generation assets. Onwards to slide 12. We've already secured capacity market agreements in the period to 2042 with a value of 600 million pounds. This could grow to over one billion if on renewal we secure new capacity market agreements at an equivalent price to the 2024 T-4 auction of £65 a kilowatt. These values are in 2024 money, so they're subject to indexation with UK CPI. So now looking at pellet production on slide 13. Our pellet production business made strong progress in 2024 with improved operational performance and profitability. Production volumes increased to 4 million tonnes, of which 2.4 million tonnes were sold to Drax Power Station. The margin achieved on own-use supply better reflects the current market value of long-term, large-scale supply. The margin achieved on our legacy third-party contract is lower. Combined with a reduced cost of production, the achieved EBITDA margin per tonne of production increased to £36. And reflecting the above, adjusted EBITDA grew to £143 million. As Will noted earlier, we expect that own-use volumes will average around 2 million tonnes a year for the period of the CFD agreement for post-27 operations. And this provides a strong underpin to delivery of our target earnings. Delivering that £250 million target assumes that we will continue efforts to maximise production from our existing capacity and will drive operational efficiencies through our supply chain, and that will include increased use of technology. Secondly, that we'll renew lower margin legacy third-party contracts at improved pricing and or we'll secure sales to new markets, which includes SAF. And lastly, we'll add incremental capacity as the demand profile becomes clear. Hawking's right forecasts show a greater than 30% increase in demand for biomass from 50 million tonnes in 2024 to 65 million tonnes by 2030. And this reflects markets such as SAF and VEX beginning to accelerate. We remain positive on the long-term outlook. A lower requirement for third party supply of biomass for Drax post 27 could lead to a supply demand imbalance in the medium term. But as a producer, a user and the seller of biomass, we believe that we're well placed to create value. We are developing a pipeline of sales opportunities for SAF, which we believe could be a major market opportunity for biomass pellets. During the year, we agreed heads of terms with Pathway Energy on a multi-year agreement that could see DRAC supply 1 million tons of biomass pellets each year for production of SAF at their proposed plant in Port Arthur, Texas. In the future, we could potentially supply two additional projects, delivering a further 2 million tons of pellets per year to Pathway sites through the 2030s. So now looking at slide 14. In 2024, Drax Power Station generated over 5% of the UK's electricity, around 10% of its renewable power, and on certain days, over 50% at times of peak demand. Adjusted EBITDA of £814 million was an increase of 16% compared to the prior period, and it reflects a higher level of renewable power generation and system support services in response to a greater system need. Drax Power Station produced 14.6 terawatt hours of electricity, an increase of 27% from the prior period. Our RO units are fully hedged for 2025 and over 80% hedged in 2026. So in total, we have 20 terawatt hours locked in, an average price of over £93 through Q1 2027. In addition, we expect the CFD unit to run at a high load factor for the coming years. These strong forward power hedges, together with a half a billion working capital benefit from the end of the RO scheme at Drax Power Station in 2027, underpin greater than £1 billion of post-tax operating cash flows in the period from 2025 to 2027. And that's prior to the commencement of the new low-carbon dispatchable CFD agreement. So looking at the balance sheet on slide 15. We maintain a strong focus on cashflow discipline and maintenance of a robust balance sheet. Available cash and committed undrawn facilities at the end of the year of 806 million provide substantial headroom over our short-term liquidity requirements. During the year, we put in place over 700 million of new debt maturing in 27 to 29, and we repaid over 900 million of shorter dated maturities significantly extending the group's average maturity profile beyond 2027. We have no significant near-term maturities. Strong financial performance and cash generation is supportive of maintaining our credit ratings. And during the second quarter, the group's issuer credit ratings were reaffirmed as BB plus by Fitch and S&P and as BBB low by DBRS. And that's with a stable outlook in each case. So moving on to slide 16 in capital investment, our capital expenditure of 330 million included 212 of growth expenditure and 83 million on maintenance. The growth expenditure includes 90 million for the OCGTs, over 60 million for pellet production capacity, mainly at the Longview site, and 30 plus million for crew can units three and four expansion. As part of the continued investment to ensure good operational performance of our generation assets, a major planned outage on one unit at Drax Power Station was completed in August of 24, and the unit returned to service ahead of schedule. There are no major planned outages in 2025. We're expecting CapEx to be in the range of £180 to £220 million in 2025. So lastly, looking at capital allocation on slide 17. We will remain disciplined on our capital allocation as we seek to maximise value. Our policy was launched in 2017 and it remains unchanged. It has four pillars. Firstly, balance sheet strength. We define this as maintaining our current credit ratings, which we believe are consistent with our long-term target of two times net debt to EBITDA ratio. Secondly, to invest in our core business. We continue to assess opportunities for the development of our portfolio. And in addition to the group's options for increasing long-duration storage of Kruken, this could also include opportunities in other storage solutions like batteries, which could complement the range of services the FlexGen business can provide. Thirdly, a sustainable and growing dividend strategy. The expected full-year dividend is a 12.6% growth in dividend per share, and over the last seven years since the policy commenced, dividend growth has averaged around 11%. Finally, we'll return surplus capital to shareholders. In August, we commenced a share buyback programme for the purchase of up to 300 million of Drax shares over a two-year period. We are almost halfway through and have bought back over 23 million shares, And the third tranche will commence shortly. With that, we'll hand back to Will.

Thank you, Andy. And now I'm on page 19. And I wanted to provide a bit more of a framework to describe how we're assessing our investment opportunities. First, it's important to realize that the energy transition is creating a wealth of short, medium, and long-term opportunities for investments that have the potential to deliver attractive returns and are also aligned with our capabilities, our purpose, and our strategic objectives. We're also aware of the need to be focused, the need to manage risk, the need to prioritize the highest return and most immediate payback investments, especially given the increasing uncertainty we see not only in the UK, but globally. So first, we're excited about our short-term opportunities. As you know, or as we've said several times already, we're in the middle of our 300 million pound share buyback, and we continue to see a lot of value in our shares. In addition, we're making incremental investments in our pellet business to drive down costs, and then our training capabilities to drive efficiency and more rapid decision making. We're commissioning the open cycles, the OCGTs, which we believe are now more important than ever as the value of flexibility increases. So I think about the medium term. A key investment thesis during my time at Drax is the growing value of flexibility, complementing intermittent renewables and inflexible nuclear. With the retirement of dispatchable fossil fuel plants and the deployment of more renewables and a structural increase in the demand for power, we're now seeing this play out. And we're leaning into this with a 40 megawatt expansion of Cruikin, an 80 million pound program that we expect will deliver an expected return in excess of 20%. And we also see more opportunity to develop and grow our portfolio of dispatchable assets in what we believe is an increasingly attractive market. We see grid connected batteries with two hours and more duration as a potentially attractive addition to our portfolio. And we'll look at both development and acquisition opportunities in that space. In Pellets, we're continuing to develop the Longview project, but we're also assessing the medium-term supply-demand dynamic associated with that project. I think longer term, our first long-term priority is to create a definitive, independent future for the Drax power station beyond the CFD bridge. One option for that is a data center, and I'll talk more about that in a minute. And beyond that, we're continuing to develop further growth options for FlexGen and carbon removals. We remain positive on the opportunities from FlexGen, including the CRUCAN2 or the extension of CRUCAN, on BECCS in the UK and globally, all of which we believe will be required to address the competing challenges of the energy trilemma. That being said, we expect to be quite judicious and the investments that we will make to maintain those options. And as we have always said, any investment in those longer-term opportunities will be subject to the right long-term framework and greater certainty. I'd like to add that the government's recent announcements of a review of greenhouse gas removal technologies, as well as the direction of travel on the long-duration storage cap and floor mechanism, as well as the initial policy moves of the Trump administration, all have increased the level of uncertainty. Just to reiterate that, of which we are very aware. That being said, we want to maintain these options and we will allocate capital to them when we're content with the risk return profile relative to the other opportunities which I've already discussed. I would also say that to the extent we find other ways of advancing our strategy, carbon removals, flex gen and pellets that have more certainty, less risk and more immediate cash flow generation. We are very much attracted to this. Fundamentally, all of this is underpinned by our capital allocation policy, which I believe we've executed with quite some discipline for quite some time. Moving on to page 20. I'm taking the next couple of pages to talk about sort of how our portfolio aligns with some of the things that are happening in the marketplace. So the decarbonization of the system by renewables is a success story, and the UK has led the way, but of course it comes with its challenges and costs. More wind on the system drives intermittency and requires more active management, curtailing wind in certain periods and incentivizing thermal generation in others. This is increasing the cost of managing the system, as well as the opportunity for us to play our part by delivering the services that the system needs. And this has been central to our strategy for a long time. And as you can see on this page, the data absolutely supports it. Over the last six years, we've seen a 50% increase in terawatt hours of wind generation, a 600% increase in the hours of negative pricing, a doubling of system costs, as well as a doubling of public storage activity. So we're increasingly confident in the value we can create from these opportunities. And you can see that coming through in our reported numbers. Since 2019, our FlexGen and Energy Solutions business has delivered greater than $850 million of EBITDA against capital investment of less than $200 million over the same period. We're doing more across our portfolio of pumped storage, hydro, gas, and biomass, which provide exposure to the drivers of value across the power system. On to page 21. And we have exciting opportunities to grow this portfolio, incremental investment in the short and medium term. So we have the 40-megawatt expansion of Kroken, which I've talked about. We have the opportunity to invest in Kroken 2, which I've also talked about. And batteries is a third area, which we've probably talked less about, but I wanna talk a bit about it now, which we're also evaluating opportunity to expand the range of services we can provide, including batteries, which could be added relatively quickly, complimenting the existing portfolio and allowing us to provide a full range of services to the grid across a wider technology base. And for us, batteries fits nicely into our portfolio. It gives us a short duration storage opportunity It takes advantage of our strong trading and optimization characteristics, and we think has nice synergies with the rest of our portfolio. On to page 22. We've been looking at the opportunity to develop a data center for about a year now. And we think that our proposition of a large-scale 24-7 renewable power, secure infrastructure, as well as proximity to the national infrastructure fiber optic network is attractive. And we have a short list of developers we're talking to about the opportunity. We see this as beginning probably before 2030 with a 100 megawatt development, which ultimately could scale to 1.2 gigawatts as we go through the 2030s. And we can provide a long-term behind the meter power source with an off-take agreement at the Brax power station. And it could also be complemented by BECCS. The two things are not mutually exclusive. Similarly, it also works with the post-2027 CFD agreements without the need for additional generation capacity to back up 100 megawatt data center. And even without the generation capacity from our biomass units, we want to emphasize the value that we have at the site. The grid access has value. And I know that Harworth, another site, recently agreed the sale of 48 acres of land with grid access to a data center developer for more than 100 million pounds, which on a comparable pro forma basis would be more than 500 million pounds for 250 acres of powered land at Drax. So we're working with developers now, and we're targeting MOU and due diligence at some point later this year, and we will update you as we have more news. Turning to page 23. We're continuing to target more than 250 million in the long term for our pallet production business, and we made good progress in 24. We improved our output from 3.8 to 4 million tons, and we improved our margins. And the CFD agreement for Jack's Power Station is an important underpin, and we're expecting to use about 2 million tons from our U.S. plants post-2027, again, at a price consistent with our target margins. But as we've said already, we have work to do to deliver the rest of that target. We need to increase production from our existing capacity. We need to add incremental capacity as the demand profile becomes clear. And our long view project is an interesting option for that. We need to renew the existing legacy contracts with aging customers at improved rates and or identify a pipeline for sales into new markets, including sustainable aviation fuel or SAF. On top of these things, we expect to supplement them with efforts to drive operational improvements and efficiencies across our supply chain using AI and also other types of technology. For example, we're researching biomass chemistry and looking for ways to allow us to improve pellet quality while extracting sugars, which could provide a secondary revenue stream from sales into a range of new markets, including animal fields, animal feeds, and ethanol. So we remain positive on the long-term outlook for pellet sales, but we do recognize the changes in demand from Drax Power Station post-27 could lead to some supply demand imbalance in the medium term. For the end, as Andy mentioned, as a producer, user, and seller of biomass, we believe we're well-positioned to create value that might come from any disruptions in the supply chain. On page 24, let me talk a bit more about sustainable aviation fuels So again, we're excited about the potential for this market. As we are about BEX, we think there's multiple new market opportunities for pellets. Specifically in the SAF world, by 2030, forecasters expect this could be about a 5 billion gallon market. That forecast is underpinned by mandates from the UK and the EU, plus targets in North America and Japan. To give you a bit of context, that's less than 5%. of the total markets for aviation fuels. The thing about that, what does that mean in terms of pellets? Well, five billion gallons would be equivalent to more than 100 million tons. It would take more than 100 million tons of pellets to make five billion gallons of sap. But let's be clear, we don't expect that all of that sap will be made from pellets. In fact, maybe 5% or so, or four to five million tons of pellets of that sap, with the rest of the feedstock coming from waste, fats and cooking oil. That's a sort of macro view. On a micro view or from our perspective, again, we have this heads of terms with Pathway for a million ton per year pellet contract that starts in 2019 for a plant in Texas. It's attractive to us because it's domestic to the US, it's close to our DAX assets, meaning it's sort of supply chain. And our deal with Padley has the potential to add a couple of additional sites, meaning there could be about as many as 3 million tons per annum in 2030s with that one customer. So as a reminder, our long-term target for pellets production is 5 million tons. So if you have 2 million at Drax and 3 million through SAF, it could be there even before you include additional European and Asian demand from other uses. On to page 25 on Elimini. So Elimini, our carbon removals company, has had a good year in 24. It was launched formally, a very exciting launch process in New York at Climate Week, and we also established our headquarters in Texas. And we remain positive on the long-term opportunity from carbon removals, but I'd like to emphasize that we think they are long-term opportunities. The market for CDRs, as you can see on the page, is growing. It's predominantly based on BECCS, but it is still small relative to our large-scale greenfield projects. And again, as I said before, we need to have the right regulation, commercial agreements, and macro political environment in place before we commit capital. So our future development expenditure is likely to be slower than it has been. And in addition to looking at greenfield projects, new build options. We're looking at ways of entering the market with lower risk, lower capital commitments, and more immediate positive cash flow. So for example, we're looking at developing a carbon credit training desk, which would allow us to access a wider range of products and revenues before 2030. We're also looking at other ways of developing CDRs, not just using VEX. And I would say we're looking at these would be lower cost and again, smaller capital investments. So we're not really looking at direct air capture, if that's what you're thinking. But again, we remain very positive on the long-term need for carbon removals in BEX in the UK, as well as globally. And as such, we continue a well-progressed option for BEX at Drax Power Station, which we believe can be and should be an important component of the government's plans for net zero in the 2030s and beyond. But again, we require significantly more certainty before committing to capital. And as such, we look to the UK government to provide more clarity on the process from here. create the right investment framework to take these important infrastructure projects forward. So finally, on page 26, we're delivering attractive returns for shareholders with strong operational performance, substantial dividend growth, disciplined capital allocation, and a significant share buyback. We're also delivering for all stakeholders with opportunities aligned to energy security, affordability, and decarbonization. We had a good year in 2024, providing good evidence of our attractive business model, providing support to the UK power system through FlexChem, Drax Power Station and the associated pellet supply chain. The heads of terms for a CFD at the Drax Power Station is a very important inflection point. But again, reminder, we still have work to do to convert that heads of terms into a firm contract. The post-2027 adjusted EBITDA target from flex-gen pellets in the draft power station of 600 to 700 million pounds reflects growing confidence in our medium to long-term outlook. On strong cash flow generation and attractive growth opportunities, we will approach those in a disciplined manner to maximize returns and minimize risk. So thank you for listening to that more lengthy than usual discussion, and we look forward to taking any questions. Thank you.

If you wish to ask a question, please press star followed by 1 on your telephone keypad. If you change your mind and wish to remove your question, please press star followed by 2. When preparing to ask your question, please ensure that your phone is unmuted locally. You can also ask a question in written format via the webcast platform. To confirm, that's star followed by 1 to ask a question. The first question is from Dominic Nash, Barclays. Please go ahead.

Good morning, everyone, and thank you for your presentation and opportunity to ask a question. Can I say, first of all, you have got a lot of moving parts going on here, like at every single level, and clearly I think there's going to be a lot of questions. So I'll limit to hopefully two, but the first one is a bit of a stream of consciousness one, I guess, which is, Can we just start, first of all, with your biomass bridging mechanism? You're clearly going down to six terawatt hours. First of all, what's your expectation? What's your expectation of extra terawatt hours above that six terawatt hours that you can operate on a merchant basis? And the next sort of link to that is clearly six terawatt hours is, what, three million tonnes of biomass. And you're currently, I think, burning about seven So I'm going to get a feel for what your delta is in biomass production. And I know that you've said that two, three times on this call, that there will be a short run sort of overhang of pellet oversupply as you maintain your 2 million tons of self-supply, therefore third parties get squeezed, which then leads on to the question. Second question then is when and how are you contracting for your pellets And as we move into that short run overhang, are you going to be contracting with yourself at this sort of arm's length sort of market price that could be quite dampened if you end up with that overhang? And or have you actually put the contracts in place or do we have a risk that you're striking CFD sort of naked? And then sort of finally on that one, have I missed this, but I think you had an 8 million ton pellet. Ambition by 2030. I presume that that is now that that is now in light of this bridging mechanism and the time is likely to be to be an ambition rather than a target. Maybe that some apologies. That's my first question. The second one hopefully be a bit quicker, which is the BEX. It looks to me BEX is being dialed down. Clearly you've got uncertainty as you pointed out with what's going on in the state of Trump. The UK government policy looks a little probably less supportive of carbon capture, but you're dialing up flexibility in data centers instead. One area of uncertainty that we're getting here is obviously REMA and the zonal power pricing. Could you give us a flavor of what opportunities and what impact that will have on your flexible generation capability, OCGTs, Kraken, and your potential expansion in flexion? And do you have to wait until we get clarity on that before we get a sort of a of a view on what you're going to do.

Thank you. Okay. I would say there's lots of moving parts in that question, Dominic. So thank you for that. So just to maybe I'll start with the bridge. So I guess the first thing I would say is that the bridge has a cap and a floor of how much we will generate. That's the first thing. Six terawatt hours being the cap, which I think is probably the important question. In terms of some of the numbers we've been saying, I think when we get to 2027, the actual sort of number at that point in time, I think is going to be about 170, right? For the actual level of the CFD. And I think we're talking about biomass cost as being about 130, if you wanted to sort of take a number, right? So I guess the question really becomes how much, how often do you or we think the market will be, the power price will be, above that 130, right? So that we could generate without a CFD to support the generation, right? We're not thinking of it as being a very big number, given where power prices are today. We think there is some possibility there, but I would say it's not a big number of marginal at best, I would suggest. I think it's probably a baseline number, right? I mean, as we've seen in the last few years, there's lots of things that can happen. So that's sort of based on the world as we see it from today. So to do those six terawatt hours is again, it's about 3 million tons of pellets. We were expecting to use about 2 million of our own. The rest of the pellets that we have, we have effectively the contracts we have into Asia effectively use pretty much the rest of the ones that we've got today in terms of that sort of four and a half million tons. So that's, you know, I think our book is well, so our production is well sold, shall we say, right? In terms of the price at which we sell those pellets, that has to be an arm's length price for reasons of transparency relative to the bridge, for reasons of tax reasons, et cetera. But again, that price should also reflect the value of a long-term contracted position. And that's true today and that will always be true. So your final question is where are we on the other million tons? I mean, we've been planning for this as well. We were planning to make sure we have the ability to have knowable and firm prices beyond 2027 for some time. We do have some option agreements in place with some third party providers. So I would say we are comfortable that we have known costs. And if there's market opportunity to do better, we will take advantage of that. In terms of BECCS, I think what I would say is that the I think we, until this sort of current administration took office, I think our feeling had been that the IRA would likely stay in place. And given this, sorry, I should say that the subsidy support for carbon capture that's embedded within the IRA, i.e. the 45Q mechanism, would continue on the basis that it's very supportive of investment and job growth in many red states. I think we still believe that to be true. However, I think the other volatility that we have seen as a result of what the Trump administration is doing, I think creates a lot more uncertainty than I probably was expecting, which is bit of a surprise to me, given I was expecting quite a bit. So I think we are quite a lot more cautious, as I think many market participants are, on longer-term, large-scale investments in renewable technologies in the US. That's a very significant issue. In terms of the UK, I guess I would say, to be fair, I was not expecting a review of greenhouse gas removal technologies from the UK government to be announced at the same time as the bridge was announced, right? I have had some discussions with government about that, and I think it's, my sense is that they would like to make sure they're comfortable with the direction of travel on the policy, obviously clearly in their gift and something they need to be and need to do but it does create again additional uncertainty and so in addition to needing to wait for the spending review which we see in the summer the sort of beginning of the track due process which again we're expecting in the summer we need to see the results of that review so all of that for me is actually meaning that you know we are um as we have been and you know we didn't spend capital on UK VEX last year, because we've been in this position for some time. So it's not in some ways a change of approach. It's just, I guess, a view that the uncertainty may be higher than we thought it would be. On REMA, I think from my perspective, I guess there's two positions. First one is that any new investment, if we were planning any new development activity, i.e. new build, greenfield asset build, I think is significantly challenged by the uncertainty that has been created by the potential move to zonal pricing. That's true for, you know, but to be fair, we really only have one sort of unstarted greenfield build project, which would be the expansion of Krugan, and there's lots of uncertainties around that as well. So that project is very much waiting for more certainty. And again, we'll probably update you, the market, sometime soon on where that sits. Because the cap and floor, again, we're analyzing it now, so we should have some more visibility on that. But again, there's still plenty of uncertainty around that one, right? But anything we might do in batteries, for example, I would expect is I'd be more interested in owning something that has a grid connection, has some known cash flows, and actually building something new. And RIEM is one of the factors around that, right? Now, how REMA might impact our existing portfolio, open cycles, draft power station, et cetera, it's hard to know because we don't know what the zones are. We don't know what the pricing will be. And so that's something we are watching. And if we don't know, REMA's going to happen. So I guess the summary is that for existing assets, we'll have to see how it plays out. And for anything that we would be thinking about starting, we would have to have more certainty before doing so. Hope that answers your question a bit lengthy.

Yeah, and apologies for the long questions, and I appreciate your response. Can you just clarify, though, will you be signing your pellet contracts for self-supply at a different rate than potentially your third-party suppliers may be offering you in light of the overhang?

We will be signing prices that are fundamentally consistent with where the market is.

Okay, thank you very much.

The next question from Pawan Mahbubani, JP Morgan. Please go ahead.

Hi, team. Thank you for the presentation and for taking my questions. I've got two, please. So on the OCGTs, can we have an update on where we are in terms of the commissioning? And my follow-up there is how are you thinking about the OCGTs as part of your portfolio? before you've indicated that, you know, these could be assets that you would be willing to sell. And, you know, in previous periods, you've said that it may not be consistent with the portfolio that you want to have, you know, toward the end of the decade or in the future. Sounds today like that's changed, but if you can give us an update on how you're thinking about that. And then my second question is thinking about capital allocation and leverage. You know, you're still maintaining your two times net debt to EBITDA targets. but it looks like you're quite significantly below, although it's true that your EBITDA number is going to be declining in the coming years versus the 24 basis. How are you thinking about your headroom capital allocation as you come to the end of this share buyback program in the coming months or toward the end of the year? Are you thinking that you have the headroom to do more? Or can you talk about how much you're willing to spend on batteries just so we can get an indication of how you're seeing balance sheet headroom if you do see it the same way I'm indicating and how you think about splitting that? Thank you.

Okay, I'm gonna take the first one and I'm gonna ask Andy to take the second one. So on the open cycles in terms of commissioning, we've got three sites as you know. I would say that they are very delayed and they're very delayed I think fundamentally because of our ability to get national grid and the system operator to actually give us access to the grids and commission them. So that's something that we're working hard to get them to hopefully get cooperatively with them to get them to perform what they need to do. So that's, I mean, and we're quite disappointed in how that's gone, right? I would say, I mean, for example, some of them are more than a year past when they were due to be commissioned, right? And that's, again, because of access to the grid. But again, we expect to commission this year. You know, I would say hopefully one in the first half, probably the other two in the second half, realistically. In terms of being part of their portfolio, I think the way I'm gonna think about it is that our purpose is to enable zero carbon lower cost energy future and we think that peaking plants are part of that enabling right they enable the system to stay in balance when the wind is not blowing and the sun is not shining and so you know i think they fit into the portfolio but there is an important proviso there which you will have seen in our sustainability framework that we have a commitment to being net zero ourselves by 2040 and so if we if we do keep them and again we if there's an effective offered to buy them that is consistent with our view of the expected returns, which, again, as I've said before, we think the expectation has risen, not dropped. We will look at it and we need to find a way to make sure that we are net zero by 2040 that's consistent with having them if they are still in our portfolio.

Andy. On the second question, Pavan, so we start with around a billion of net debt at the end of this year. As you noted, to the extent that consensus exists for 27 now, It's around 560 million. So on a two times basis, that's supportive of the debt that we have today. Now, clearly, we're going to generate significant cash, as we've noted in the period through 27, including the rock and wine. But that will give us plenty of capacity to do anything as far as adding to expanding our portfolio. And then our capital allocation policy is very clear and will continue to be disciplined in how we apply that. You know, if there's surplus cash, then it's clear what we would consider and we'll continue to do it.

Thank you.

The next question from Harrison Williams. Morgan Stanley, please go ahead.

hi morning thanks for taking my questions um two from me first just on the um the pellet guidance so uh i think you achieved a margin this year of kind of 36 per ton and you've reiterated the target to reach uh i guess 50 pounds per ton um can you give us some insight into how that'll i guess develop between now and 2027 should it be a gradual improvement or are you expecting to be more back-end loaded and i guess maybe a another way of asking that question at the end of the period, well in 2028, I guess, how much of the five megatons you're expecting to produce will still be on legacy contracts that are suboptimal? So that's the first question. And the second question, as we think about your discussions with data centers, is it reasonable to use the CFD bridge as a reasonable pricing point, or are there differences we should be considering in those negotiations? Thanks.

Just maybe trying to understand the second question. So are you saying is the CFD strike price the right price to think of for the data center?

Yeah, I mean, is that sort of pricing point you'd be expecting to achieve, or would you be expecting maybe something lower but much higher volume? Well, I guess you've given us the volumes. I guess any further color in respect to that price point?

So first one, I'll ask Andy to come up on the first one in a sec, but I'll take the second one. I think the way that we need to think about the data center position is it needs to be – effectively opportunity means that you're not paying the third party charges and other grid charges that effectively one pays if it's a consumer of power through the grid, right? Now that's, you know, to a significant extent probably doubles more or less the cost of wholesale power. And so effectively what we need to do is we need to basically price, we need to reach an agreement the data center provider, which is competitive with what they might be able to get through the grid. So I would think of it much more as a sort of commercial negotiation where we need to make sure we're providing an attractive option that's consistent with the other forms of power that a data center provider could access. So I think that's what I think about it. Hopefully that answers that one.

Yeah. So today we have around four million tons. And if you look at that, it's split reasonably evenly between the south of the US and Canada. To get to 5 million, we'll increase output from our existing plants to 4.5 million tonnes. And most of that expansion will come out of the southern plants. And we're making good progress there. We increased production this year and we commissioned Aliceville expansion during the year. So we're on track to do more pellets out the south this year than last. um so the important thing is that those southern um pellets are um you know will supply the period post 27 now through 31 so that's a good underpin for those earnings So the balance then of around 2 million tonnes of our existing is what sits out in these long-term Asian legacy contracts. Around a million tonnes of those will come up for renewal over the next five years. So over that time, there'll be a chance to improve the margins there potentially. The last half a million is a Longview pellet plant expansion, and we will only sort of finalise and do that once we're clear on the offtake for those pellets. So, you know, I think it's fair to say that the improvement there is going to be back and loaded because it's going to depend on, one, the timing of finishing Longview and the repricing of those legacy contracts that come over the next five years.

Very helpful. Thanks.

The next question from Alex Wheeler, RBC. Please go ahead.

Morning. Two from me, please. Well, two and a small follow-up. First one is, is the view very much that you look to focus on the FlexGen business over the coming years? You've highlighted that you're already broadly there on the $250 million EBITDA target for post-27. But given that supply-demand imbalance in the pellets that you talk about, which might create a little more uncertainty, is it in FlexGen where you may focus for potential additional investments in the shorter term? And then I guess my question there is, is it only batteries that is a potential new opportunity there or other areas you might be looking at? Second point is just to follow up on Pavan's question, as I don't know if I missed it. Do you have a rough guide to what the sort of battery investment numbers might be? And then finally, just on the data center point, I know that we're at a very early stage here, but beyond the MOU, if we think about the initial 100 megawatts by 2030, could you just give a sense of what the timings and the moving parts might look like beyond signing an MOU to the extent that you can? Thank you.

Okay, so on the investment focus, I mean, I think if you go, I think the key thing from the investment focus is a couple of different points. One is that, you know, it is, we're attracted to investments where there is sort of known cash flow in our core markets, right? If there are those in the pallet space, for example, it would be interesting, but that would require something that has a known offtake And there aren't, I don't think there's lots of opportunities in that space, right? So in the FlexGen space, we have, we are seeing opportunities in that space. I mean, I think, you know, if you think about our portfolio, storage, hydro, open cycles, customers, customers less likely to invest more in sort of acquisitions and customers, but in the other spaces, if there's opportunities that line up with where we are in our portfolio, including batteries, we would do that. In terms of quantums, I guess the only thing I would say is that the, I think given the nature of uncertainty in the world at large, we will sort of be prudent in the sort of the bite sizes or the size of bites we might take. I think that's quite important. So one of the things, again, earlier cash flows, shorter paybacks, attractive returns, less risk embedded in any one specific transaction. In terms of the data center and in terms of the timing, I mean, I think Maybe the 100 megawatt point is important because we believe we can actually deliver power to a 100 megawatt data center in a way that's consistent with the way the bridge is structured. If you go bigger than that, that becomes more challenging and we'd have to figure out how to do that. In terms of the timing of when we think a data center could get up and running, 100 megawatts is probably the way we think about what we might do in the 20s, broadly speaking. So, again, I think it's very likely, again, given the time that these things take, that all of that will work out in a way that makes sense to have that 100 megawatts long-sized bridge, right? In terms of the rest of the timing on it, I think it's too early to say, Alex. I mean, exactly where we are. It's still early stage in these discussions. And so, you know, we would hope to have something more we can tell you this year, but beyond that, I would say something in the 20s, but sort of back-ended probably, and then As I said before, growth in the 30s. Did I answer all your questions there?

Yeah, that's great. Thank you.

Next question from Adam Forsyth, Longsborough Capital. Please go ahead.

Adam, we're not hearing you if you're speaking.

Sorry, can you hear me now? Yes. Yeah, hi, sorry about that. Yeah, two questions, just essentially both on really on the new running of the biomass units after 27. First is any impact on the energy solutions business? Guidance appears to be broadly unchanged for that business with FlexGen, but I just wonder any material change in how you do purchasing and how you sort of manage risk in that business given the change in the biomass units operating? And then secondly, your comment on batteries and the four gigawatts of grid connection at the Drax Biostation site. And effectively, about 1.2, almost 1.3 of that is actually available right now on the two old coal units that are not running. But I wonder if that's what we should be focused on, or can you go beyond that and actually run batteries alongside the grid connection for those biomass units?

So first on the CFD and how does it impact, does the drug-centered solutions business, I think we don't expect it to have a significant impact on the way that business is run. In terms of batteries, I would say, you know, we're looking at development options, but we're also looking at acquisition options. So I would say that's probably the way that I would have both of those in your mind. I think that's probably answers that question, right?

So. Okay. Thanks. Thanks.

The next question from Charles Swaby, HSBC. Please go ahead.

Good morning, everyone. Thank you for taking my questions. I have two. First one, just on the cruise expansion, I know you mentioned this a bit earlier, but when we When do you think we might get some additional clarity on that? I know we're going to get a few announcements from government this half the year, but if you could provide an indication, maybe when you're thinking a potential FID is possible, and if you're more or less confident of getting that project over the line compared to 12 months ago. And then the second one, just a follow-up on the data centres. All those conversations you're having with developers, are they involved in using Drax passation as is, or are there any that are involving BEX as well?

Thank you. Good questions. So in terms of the Krook and expansion, I would say we are, I would say, in the middle of assessing the attractiveness of the Gavin Ford regime, I would say, as well as both in general and both how it applies specifically to the project that we've got. And I would expect we should have more clarity on that in the first half of this year. I would say by results at the middle of the year, put it that way. And if you ask me, am I more or less confident? I'd probably say I'm less confident than I would have been 12 months ago. And that's, to be honest, it's probably a function of our first initial blush look at the cabin floor, but it's also probably a function of the overall sort of attractiveness of the macro environment for long-term investments of that scale. On the data centers, I think currently we are looking, most of that is looking at the power station pretty much as is and running it or using power from the power station as it is. That being said, I think there would be, we haven't had discussions with people sort of in a general sense about BECCS power and how that might be attractive for a data center. I mean, this is my way of interest. It's something that's very much part of the of the pathway project, so for making SAF. So I think that's power as a way of increasing the carbon sort of, or decreasing the carbon intensity of what people are doing by adding the carbon removal is just absolutely something that people are interested in. So I think it's probably not part of the initial offering, but it could be part of that. It definitely is consistent with what we might do with the data center over time.

Great, thank you.

There are no more questions from the phone at the moment.

Okay, so there's two questions I see on the webcast. Shall I read them off? So you said at the beginning of the call that under the new sustainability criteria, you won't be required to buy more pellets from Europe. Is that on an absolute basis or as a percentage of your new pellet consumption under the new CFD? So I guess the first thing I would say is the way to think about this is, you know, when a pellet is produced and is travels through the supply chain to the direct power station, there is a limit to how much greenhouse gas can be emitted through that whole process. And all the pellets that we would expect to procure that come out of North America, we believe and we know that those can be procured at levels that have, that are consistent with that greenhouse gas cap. So I guess in specific answer cards, there's no requirement to buy more pellets from Europe and there's no, there's no effective limit on what we can get out of North America based on that greenhouse gas emissions cap. Hope that answers that one. The second question from Martin Young. The first one was from Hugo Lafay, second one from Martin Young. The CP 2030 report points to considerable new generation being needed and there is a need to move at pace. I couldn't agree more. Engineered removals are part of the Climate Change Committee's seventh carbon budget, correct? Yet policy progress is somewhat glacial. That's your turn, Martin. REMA being a case in point, not helped by the zonal fight. I appreciate that Drax is likely to be less likely impacted by zonal, but interested in your view on zonals, yes or no, given your position. So I guess my view on zonal is that I think it's... I think that the conceptual economic rationale, the idea that it makes sense to have prices be lower where there's more supply than demand and prices to be higher in the situation, which is the reverse, I can understand that logic. The challenge I think with REMA is twofold. One is the timing of the whole thing. So one is that the uncertainty created by not knowing if and when it's going to happen and what the impact will be. So for a new investment, I think it's quite a dampening impact. And I mean, as I mentioned before, Martin, that's not something that is impacting us so much at the moment, but as we think about things like recruitment expansion, or we think about anything that we might do on a new bill front, and as you know, our portfolio, there's nothing else significant in the new bill front there at the moment. That's definitely a consideration. And I know from talks With my peers around the industry, the people who are working on large scale projects in all the different spaces, it's a very big issue for that. But the second point for me is that even if there is logic to that, the question for me then becomes, can demand actually react to those signals? So, you know, things like a data center, you know, placing them near an offshore wind farm because the prices are lower. There's lots of other issues associated with where you would put a data center. So I think there's, it's definitely, it's a complex question, right? So I think it's a real, there's a real substantial trade-off between the benefits of actually certainty and knowing where you're going relative to the potential and potentially real economic benefits of having general pricing. I don't know if that's, that's probably a bit of a fudged answer, but hopefully that gets you to the context. Are there any more questions from the teleconference?

There are no more questions from the telephone.

Fine, and there's no more questions from the webcast. So thank you all for listening. I'm sort of, I guess the one comment that stuck with me was yours, Dominic, in the very beginning, that there are lots of moving parts. But I think if I could sort of go back and sort of how would I sort of explain that? I think if one thinks about the core business, I think the parts are becoming, are moving less, maybe, if that's a fair point. I think the flex-gen business is what it is and has been for some time. The pellet business, I think, is on a trajectory that's consistent with what our targets are, and I think that hopefully that that's becoming more clear. Granted, I understand the CFD absolutely needs to be understood, and it's a complex instrument, so we will spend time with everybody to make sure we do our best to help explain that. And then if I were to summarize briefly our sort of, I think it is a change in our investment approach. It's very much more a function of, as a result of greater uncertainty, higher cost of capital, a bit less enthusiasm from governments and maybe from corporates in sort of committing their own capital to sort of green investment. you know, we're adapting accordingly, right? And we're looking for things that we can invest what we expect to be a couple billion pounds of available cash over the next half a decade in things that give us immediate returns that are attractive and have the right risk return profile. And we think there are lots of interesting ways of doing that. So hopefully that summarizes briefly where we are. And I thank you all for listening and look forward to catching up over the next days and weeks. I think we have breakfast with many of you tomorrow.