Drax Group plc

Thank you, and good morning, everyone, and 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 allocation, and we'll finish up with questions. Now on Page 3.

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-generative business that has a track record of achieving those joint objectives.

Now 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 Drax, where I want everyone to feel a valued member on a winning team with a worthwhile mission.

So turning to Page 4. 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 that our total recordable injury rate 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 GBP 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 used those proceeds to repay about GBP 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 GBP 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 U.K., 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 GBP 600 million to GBP 700 million from these 3 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 FlexGen, 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 5.

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 GBP 250 million of EBITDA on a pro forma basis.

In Energy Solutions earlier this month, we agreed on the sale of all of the residual SME meters, which will mean that the business will be based on I&C, renewable, and EV solutions. This has greatly simplified that business.

The business is doing very well with good performance in I&C, and we have learned important lessons from that simplification process. Our pellet 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 Drax Power Station gives us confidence that we can deliver between GBP 100 million and GBP 200 million of EBITDA during the bridge period, and I'll provide more details on that in a second. So again, across those 3 businesses, we're now targeting GBP 600 million to GBP 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, we have attractive options, which we continue to believe offer significant opportunities for long-term value creation. In our FlexGen business at the Drax Power Station, which could accommodate both the data center and BECCS, it's unique in the U.K.

and has 4 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 6. The agreement of 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 6 terawatt hours ratably across the year to achieve the baseload reference price and receive or pay the difference between the baseload reference price and the CfD strike price, the so-called pump. In periods of high demand, we will actually use all 4 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 per 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 U.S.

biomass. I want to be quite good that, that's not the case.

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 the government to lay secondary legislation, a statutory instrument for 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 7.

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 3 pillars of climate, nature, and people.

Please have a look at it and it includes substantial targets across those 3 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 Andy.

Thank you, Will, and good morning, everyone. Starting with the financial summary on Slide 9.

Once again, we've delivered strong financial and operational performance. Adjusted EBITDA grew 5% to GBP 1.064 billion, reflecting a high level of renewable power generation and system support activity and an improvement in pellet production.

Our balance sheet is strong. We ended the year with net debt to adjusted EBITDA of 0.9x.

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 GBP 1.1 billion.

The board has proposed a final dividend of 15.6p per share, bringing the full year dividend for 2024 to 26p 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 GBP 500 million per annum of post '27 recurring adjusted EBITDA from our FlexGen and Energy Solutions and pellet production businesses. As Will has already noted, earlier this month, we agreed a nonbinding head of terms for a CfD for Drax Power Station to operate between April 27 and March 31.

Reflecting our expectations for that agreement, we're now targeting recurring post '27 adjusted EBITDA in the range of GBP 600 million to GBP 700 million. This excludes investment opportunities, which includes development expenditure in Elimini, innovation and capital projects.

Performance in pump storage and hydro was underpinned by robust system support earnings. Our I&C 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 U.K. power system.

On to Slide 11. We're continuing to target greater than GBP 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 performed 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 '23.

Adjusted EBITDA in Energy Solutions of GBP 51 million included $81 million of earnings from our I&C business. Alongside supplying renewable energy, our I&C business provides EV and other value-added services such as asset optimization.

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 GBP 188 million.

So taken together with our target post '27 earnings from our 3 new OCGTs of GBP 50 million and capacity market income from the Cruachan Units 3 and 4 refurbishment of GBP 15 million, the illustrative earnings increased to greater than GBP 250 million. The GBP 80 million investment to refurbish and upgrade Units 3 and 4 of Cruachan is on track.

The project is underpinned by a 15-year capacity market agreement worth over GBP 220 million and will add 40 megawatts of additional capacity by 2027 and improve unit operations. Our 3 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 GBP 250 million.

And in addition, we'll 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 GBP 600 million.

This could grow to over GBP 1 billion if on renewal, we secure new capacity market agreements at an equivalent price to the 2024 T-4 auction of GBP 65 a kilowatt. These values are in 2024 money, so they're subject to indexation with U.K.

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 onus supply better reflects the current market value of long-term large-scale supply. The margin achieved on our legacy third-party contracts is lower.

Combined with the reduced cost of production, the achieved EBITDA margin per tonne of production increased to GBP 36. And reflecting the above, adjusted EBITDA grew to GBP 143 million.

As Will noted earlier, we expect that onus 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 GBP 250 million target assumes that we will continue efforts to maximize 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. Lastly, we'll add incremental capacity as the demand profile becomes clear.

Bookings rates forecast 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 BECCS beginning to accelerate. We remain positive on the long-term outlook.

The 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 multiyear agreement that could see Drax supply 1 million tonnes of biomass pellets each year for production of SAF at their proposed plant in Port Arthur, Texas.

In the future, we could potentially supply 2 additional projects, delivering a further 2 million tonnes of pellets per year to Pathway sites through to 2030. And now looking at Slide 14.

In 2024, Drax Power Station generated over 5% of the U.K.' s electricity, around 10% of its renewable power and on certain days, over 50% at times of peak demand.

Adjusted EBITDA of GBP 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 at an average price of over GBP 93 through Q1 2027.

In addition, we expect the CfP unit to run at a high load factor for the coming years. These strong forward power hedges, together with a GBP 0.5 billion working capital benefit from the end of the RO scheme at Drax Power Station in 2027, underpin greater than GBP 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 cash flow discipline and maintenance of a robust balance sheet.

Available cash and committed undrawn facilities at the end of the year of GBP 806 million provides substantial headroom over our short-term liquidity requirements. During the year we put in place over GBP 700 million of new debt maturing in '27 to '29, and we repaid over GBP 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+ 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 and capital investment.

Our capital expenditure of GBP 330 million included GBP 212 million of growth expenditure and GBP 83 million on maintenance. The growth expenditure includes GBP 90 million for the OCGTs, over GBP 60 million for pellet production capacity, mainly at the Longview site and GBP 30-plus million for Cruachan Units 3 and 4 expansion.

As part of the continued investment to ensure good operational performance of our generation assets, a major planned outage on 1 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 GBP 180 million to GBP 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 maximize value. Our policy was launched in 2017, and it remains unchanged.

It has 4 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 2x 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 Cruachan, 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. The expected full year dividend is a 12.6% growth in dividend per share.

And over the last 7 years since the policy commenced, dividend growth has averaged around 11%. Finally, we'll return surplus capital to shareholders.

In August, we commenced the share buyback program for the purchase of up to GBP 300 million of Drax shares over a 2-year period. We are almost halfway through and have bought back over 23 million shares, and the third tranche will commence shortly.

With that, I'll hand back to Will.

Thank you, Andy. And now I'm on Page 19, and I want 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 investment 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 U.K.

but globally. So first, we're excited about our short-term opportunities.

As you know, as we've said several times already, we're in the middle of our GBP 300 million 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 cost and then our trading 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, the key investment thesis during my time at Drax is the growing value of flexibility, complementing intermittent renewables and flexible 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 Cruachan, an GBP 80 million 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 2 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 Cruachan 2 and the extension of Cruachan on BECCS in the U.K. 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 in 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 in carbon removals, FlexGen 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.

In 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 U.K. 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 6 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 pump storage activity.

So we're increasingly confident in the value we can create from these opportunities, and we can see that coming through in our reported numbers. Since 2019, our FlexGen and Energy Solutions business has delivered greater than GBP 850 million of EBITDA against capital investment of less than GBP 200 million over the same period.

We're doing more across our portfolio of pump storage, hydro, gas and biomass, which provide exposure to the drivers of value across the power system. On to Page 21, we have exciting opportunities to grow this portfolio for incremental investment in the short and medium term.

So we have the 40-megawatt expansion in Cruachan, which I've talked about. We have the opportunity to invest in Cruachan 2, which I've also talked about.

And batteries is the third area, which we probably talked less about, but I want to talk a bit about it now, which we're also evaluating opportunities to expand the range of services we can provide, including batteries, which could be added relatively quickly, complementing 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 that 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 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 offtake agreement at the Drax Power Station.

And it could also be complemented by BECCS. The 2 things are not mutually exclusive.

Similarly, it also works with the post-2027 CfD agreement without the need for additional generation capacity to back up a 100-megawatt data center. 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 note that Harworth, another site, recently agreed the sale of 48 acres of land with grid access to a data center developer for more than GBP 100 million, which on a comparable pro forma basis would be more than GBP 500 million 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 GBP 250 million in the long term for our pellet production business, and we made good progress in '24. We improved our output from 3.8 million to 4 million tonnes, and we improved our margins.

And the CfD agreement for the Drax Power Station is an important underpinning, and we're expecting to use about 2 million tonnes from our U.S. plants post 2027, again, at a price consistent with our target margin.

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 Longview project is an interesting option for that. We need to renew the existing legacy contracts with Asian 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 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. And 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. Again, we're excited about the potential for this market as we are about BECCS.

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 U.K. and the EU, plus targets in North America and Japan.

And to give you a bit of context, that's less than 5% of the total market for aviation fuels. Think about that, what does that mean in terms of pellets?

Well, 5 billion gallons would be equivalent to more than 100 million tonnes. It would take more than 100 million tonnes of pellets to make 5 billion gallons of SAF.

But let's be clear, we don't expect that all of that SAF will be made from pellets. In fact, maybe 5% or so or 4 million to 5 million tonnes of pellets would be used to make then roughly 5% of that SAF with the rest of the feedstock coming from waste, fat and cooking oil.

That's the sort of macro view. On a micro view or from our perspective, again, we have the heads of terms of Pathway for 1 million tonne per year pellet contract that starts in 2019 for a plant in Texas.

It's attractive to us because it's domestic to the U.S. It's close to our Drax assets, meaning it through our supply chain.

And our deal with Pathway has the potential to add a couple of additional sites, meaning there could be about as many as 3 million tonnes per annum in 2030s with that one customer. As a reminder, our long-term target for pellets production is 5 million tonnes.

So if you have 2 million at Drax and 3 million through SAF, you could be there even before you include additional European and Asian demand from other uses. On to Page 25 and 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 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 trading 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 BECCS.

And I would say we're looking at these will be lower cost and 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 and BECCS in the U.K. as well as globally.

And as such, we continue a well progressed option for BECCS 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 U.K. government to provide more clarity on the process from here to create the right investment framework to take these important infrastructure projects forward.

So finally, on Page 26, we are 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 U.K. power system through FlexGen, 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, a reminder, we still have work to do to convert that heads of terms into a firm contract.

The post 2027 adjusted EBITDA target from FlexGen, pellets in the Drax Power Station of GBP 600 million to GBP 700 million reflects growing confidence in our medium- to long-term outlook. And 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.

Can I say, first of all, you have got a lot of moving parts going on here, every single level. And clearly, I think there's going to be a lot of questions.

So I'll limit to 2, 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 6 terawatt hours.

First of all, what's your expectation of extra terawatt hours above that 6-terawatt hours that you can operate on a merchant basis? And the next sort of linked to that is clearly, 6 terawatt hours is what, 3 million tonnes of biomass and you're currently, I think, burning about 7.

So I'm trying to get a feel for what your delta is in biomass production. And I know that you've said that 2, 3 times on this call that there will be a short run of overhang of pellet oversupply as you maintain your 2 million tonnes of self-supply, therefore, third parties get squeezed, which then leads on to the 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 tonne pellet ambition by 2030. I presume that, that is now in light of this bridging mechanism and the tonnage is likely to be an ambition rather than a target, so apologies, that's my first question.

The second one, hopefully be a bit quicker, which is the BECCS, it looks to me BECCS is being dialed down. Clearly, you've got uncertainty, as you have pointed out with what's going on in the States with Trump.

The U.K. 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 zonal power pricing. Could you give us a flavor of what opportunities and/or what impact that will have on your flexible generation capability OCGTs Cruachan and your potential expansion in inflection?

And do you have to wait until we get clarity on that before we get a sort of a view on what you're going to do?

Okay. I would say there's lots of moving parts in that question, Dominic.

So thank you for that. So just maybe I'll start with the bridge.

So I guess the first thing I'd say is that the bridge has a cap and a floor of how much we will generate. That's the first thing, 6 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? So the actual level of the CfD.

And I think we're talking about biomass cost as being about 130, if you want to sort of take a number so I guess the question really becomes how often do you or we think the power price will be above that 130, right, so that we could generate on 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 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 6 terawatt hours, again, it's about 3 million tonnes of pellets. We are expecting to use about 2 million of our own.

The rest of the pellets that we have, we have effectively the contracts we have in Asia effectively use pretty much the rest of the ones that we've got today in terms of that sort of 4.5 million tonnes. So I think 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, the railway on the other 10 million tonnes.

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 pellet 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 if you take it maybe U.S. and then the U.K.

I think until this sort of current administration took office, I think our feeling has been that the IRA would likely stay in place. And given -- 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's been sort of 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 a 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 U.S. That's a very significant issue.

In terms of the U.K., I guess I would say, to be fair, I was not expecting a review of greenhouse gas removal technologies from the U.K. government to be announced at the same time as the bridge was announced right?

And I have had some discussions with the government about that. And my sense is that they would like to make sure they're comfortable with the direction of travel on the policy, which is obviously clearly in their gift consuming 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 beginning of the Cruachan 2 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 as we have been, and you know we didn't spend capital on U.K.

BECCS 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 had thought it would be. On REMA, I think from my perspective, I guess there's 2 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 general pricing that's true for -- but to be fair, we really only have 1 sort of unstarted greenfield build project would be the expansion of Cruachan, 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 capital flooring and 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'd be more interested in owning something that has a grid connection, has some known cash flows and actually building something new, and REMA is one of the factors around that.

Now how REMA might impact our existing portfolio, open cycles, Drax Power Stations, 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 we don't know when it'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.

I hope that answers your question at lengthy.

Yes. 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 that 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.

I've got 2, 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? Because before you've indicated that these could be assets that you would be willing to sell.

And in previous periods, you've said that it may not be consistent with the portfolio that you want to have toward the end of the decade or in the future. It sounds today like that's pain, but if you can give us an update on how you are thinking about that?

And then, my second question is thinking about captial applocation and leverage, you are spending 2x net debt to EBITDA target, but it looks like you are quire significantly below anything it's true that your EBITDA numbers are going to be the coming years versus the '24 basis. But, how are you thinking about your the headroom capital allocation as you come to the end of the share buyback program in the coming months or towards 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?

Okay. I'm going to take the first one, and I'm going to ask Andy to take the second one.

In terms of commissioning we've got three sites as you know. I would say that, they are very delayed, and they are very delayed because fundamentally because of our ability to get national grade and system operated give us access to the grads and commission them.

So, that's something that we are working hard to get profitably with them and perform too. I'm quite disappointed with how that's not.

I would say, for example, some of them are more than a year past when they were due to be commissioned? And that's again because of access to the grid.

But again, we expect to commission this year. I would say, hopefully, in the first half, probably the other 2 in the second half realistically.

In terms of being part of the portfolio, I think the way I want to think about it is that our purpose is to enable a 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 I think they fit into the portfolio.

There is an important provider 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 do keep them, and again, if there's an attractive offer to buy them that is consistent with our view of the expected returns, which again, as I said before, we think that 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 GBP 1 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 GBP 560 million.

So on a 2x 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 ROC amount, 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 we'll continue to be disciplined in how we apply that. There's surplus cash, then it's clear what we would consider and we'll continue to do.

Good morning. Thanks for taking my questions and two from my.

First from me is on pellot guidance. So, I think you have achieved my this year of GBP 36 and you've reiterated target to reach I guess GBP 50 per ton.

Can you give some insight into how that will all develop between now and 2027. It strengthen be a gradual improvement or you are starting to see more back-end loaded?

I think mybe another way of asking that question, at the end of the period, in 2028 I guess, how much of the five you are expecting to produce will still on legacy contracts that are sub-optimal? 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?

Just to make sure I understand the second question. So are you saying is the CfD strike price the right price to think up for the data center?

Yes. I mean is that sort of a pricing point you would be expecting to achieve?

Or would you be expecting maybe something lower but much higher, well, I guess you've given us the volumes. I guess any further color in respect to that.

So first one -- I'll ask Andy to come back on the first one in a second, but I'll take the second one. I think the way that when you think about the data center position is it needs to be so the behind the meter 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 significant that probably doubles more or less the cost of wholesale power. So effectively, what we need to do is we need to basically price, we need to reach an agreement with the data center provider, which is competitive with what they might be able to get to the grid, right?

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, right? So I think that's way to think about it.

Hopefully, that answers that one. Andy?

Yes. So today, we have around 4 million tonnes.

And if you look at that, it's split reasonably evenly between the south of the U.S. and Canada.

And 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 of the South this year than last. So the important thing is that those southern pellets 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 1 million tonnes of those will come up for renewal over the next 5 years. So over that time, there'll be a chance to improve the margins there potentially.

The last 0.5 million is the Longview pellet plant expansion, and we will only sort of finalize and do that once we're clear on the offtake for those pellets. So I think it's fair to say that the improvement there is going to be back-end 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 5 years.

Two from me, please, or 2 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 highlighted that you're already broadly there on the GBP 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 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 are there other areas you might be looking at?

Second point is just a follow-up on Pavan's question, 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?

Okay. So on the investment focus, I mean, I think the key thing from the investment focus is there are a couple of different points.

One is that we're attracted to investments where there is sort of known cash flow in our core markets, right? If there are those in the pellet space, for example, we'd be interested, 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 are seeing opportunities in that space. I mean I think if you think about our portfolio, pump storage, hydro, open cycles, customers, I think customers less likely we will invest more for acquisitions of 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 I think given the nature of uncertainty in the world at large at the moment, 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, right?

In terms of the data center, in terms of the timing, I think the -- maybe the 100-megawatt point is important because we could actually -- 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 have to sort of 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 100 megawatts well inside the 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 we would hope to have something more we can tell you this year, but beyond that, it's I would say, something in the 20s, but sort of back end probably. And then as I said before, growth in the 30s.

Did I answer all your questions there.

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

Sorry, can you hear me now?

Yes.

Sorry about that. Yes, 2 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 is wrapped in 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 operating?

And then secondly, your comment on batteries and the 4 gigawatts of grid connection at the Drax Power Station site. I mean it's actually about 1.2, almost 1.3 of that is actually available right now on the 2 old coal units that are not running.

But I wonder is that 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 the Drax Power Station and Energy 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 we're looking at development options, but we're also looking at acquisition options.

So I would say that's probably the way to -- I would have both of those in your mind. And I think that probably answers that question right itself.

I have 2. First one, just on the Cruachan expansion.

I know you mentioned this a bit earlier. But I mean, 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 of 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 centers. All those conversations you're having with developers, are they involving using Drax Power station as is?

Or are there any that are involving BECCS as well?

Good questions. So in terms of the Cruachan expansion, we are, I would say, in the middle of assessing the attractiveness of the cap and floor 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 or I would say, by results at the middle of the year. 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, right?

And to be honest, it's probably a function of our first initial blush look at the cap and floor, but it's also probably a function of the overall attractiveness of the macro environment for long-term investments of that scale. On the data centers, I think currently, most of that is looking at the Drax Power Station pretty much as it is and running it or using power from the Drax power station as it is.

That being said, I think we have had discussions with people sort of in a general sense about Drax Power and how that might be attractive for a data center. I mean, just by way of interest, it's something that's very much part of the Pathway project, so for making SaaS.

So I think Drax Power as a way of decreasing the carbon intensity of what people are doing by adding the carbon removals is absolutely something that people are interested in. So, 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 also.

Okay. There's two questions I see on the webcast, so 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 when a pellet is produced and travels through the supply chain to the Drax 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 are consistent with that greenhouse gas cap, right?

So I guess the specific answer, there's no requirement to buy more pellets from Europe, and 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 first one is from Hugo Lafaye. 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.

The policy progress is somewhat glacial. That's your term, Martin.

REMA being a case in point, not helped by the zonal spikes. I appreciate that Drax is likely to be less likely impacted by zonal, but interested in your view on zonal's yes or no, given your position.

So I guess my view on zonal is that I think that’s the right way to the conceptual economic rationale or the idea that it makes sense to have prices be lower where there's more supply than demand and prices to be higher situation which is the reverse, I can understand that logic, right? The challenge, I think, with REMA is twofold.

One is the timing of the whole thing, right? So one is the uncertainty created by not knowing if and when it's going to happen and what the impact will be.

So for new investment, I think it's quite a dampening impact. And 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 the Cruachan expansion or we think about anything that we might do on a new build front. And as you know, our portfolio, there's nothing else significant in the new build front there at the moment.

That's definitely a consideration. And I know from talks with my peers around the industry that people who are working on large-scale projects in all the different spaces, it's a very big issue for them, right?

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, right? So things like a data center, replacing 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, definitely, it's a complex question, right?

So I think there's a real substantial trade-off between the benefits of actually certainty and knowing where you're going relative to the potentially real economic benefits of having zonal pricing. That's probably a bit of a fudged answer, but hopefully that gives you a bit of context.

Are there any more questions from the teleconference?

And there's no more questions from the webcast. So thank you all for listening.

I guess the one comment that stuck with me was yours, Dominic, in the very beginning, and there are lots of moving parts. But I think if I can 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 moving less maybe if that's fair. I think the FlexGen 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's becoming more clear.

I granted I understand the CfD absolutely needs to be understood is 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 I think it is a change in our investment approach. It's very much more a function 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 investments, we're adapting accordingly.

We're looking for things that we can invest what we expect to be a couple of billion pounds of available cash over the next half a decade and 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 a breakfast with many of you tomorrow. Thank you.