Drax Group plc (DRX) Earnings Call Transcript & Summary

Good morning, everyone, and welcome to Drax Group's 2021 Capital Markets Day. It's great to see so many of you here with us in the room today. And looking around, I mean, I think I recognize most people, but for those of you who I've not met, I'm Mark Strafford, the group's Head of IR. I'd also like to wish a warm welcome to those of you joining via the webcast. I know we have a large number dialing in this morning. So again, welcome. Just a couple of bits of admin from me before I hand over to Will Gardiner, the group's Chief Executive, to take you through the strategy. Firstly, and most importantly, safety, yours and ours. There are no scheduled fire drills this morning. So if the fire alarm does sound, please take notice and leave the building. Secondly, in terms of structure for today, we have 4 presenters. Firstly, Will, who will be updating on strategy; secondly, Alan Knight, who will be updating on sustainable business. Third, Jason Shipstone, who will be updating on negative emissions and BECCS. And thirdly, our CFO, Andy Skelton, who will be updating on investment and numbers. Once we've been through that, we'll open it up to Q&A. Firstly, taking questions from the floor, and then we'll move on to questions submitted via the webcast. Lastly, we expect the session to run for around 2 hours this morning. After which, for those of you with us in the building, we'd be delighted if you would join us for some refreshments and lunch. And with that, I'll hand over to Will.

Great. Thank you, Mark, and good morning, everyone. It's great to be here. So I'm going to walk you through the evolution of our strategy and sort of where we've gotten to. And I'm going to start with our purpose and our ambition because those remain very much at the core of who we are and what we want to do. So our ambition to become a carbon-negative company by 2030 and our purpose to enable a 0 carbon lower-cost energy future. When we were here 2 years ago or the last time we did a Capital Markets Day, the question we were trying to answer for people was what did we think the future of Drax might look like post 2027. And we laid out a couple of different models, a model of how we might run without subsidy, another model of running with carbon capture and storage or BECCS and a third model where we might sell pellets to third parties, right? And underpinning all of that or the key objectives that we had that we thought would deliver those were getting the cost of biomass power generation down to GBP 50 per megawatt hour and also getting our self-supply up to 5 million tonnes. So that's where we were 2 years ago. And I just wanted to go through some of the progress that we've made over the last 2 years and actually delivering on those objectives because I think that sets us up for the next stage of our strategy, which we're going to talk about more today. So on the pellet production side, we now having completed the acquisition of Pinnacle. We have 4 million tonnes of production capacity. That's up from 1.5 million tons 2 years ago. we have 13 plants. We have across 3 fiber baskets and 4 ports and a couple more in commissioning. We lowered the cost from about $166 a tonne to $141. And just for reference, $100 a tonne is more or less equivalent to that GBP 50 per megawatt hour. And I think quite importantly, we also now have a third-party sales book of pellets that's worth more than GBP 4 billion over long term -- over the long term. And we have a strong capability now to grow that with a strong sales team again that came with the Pinnacle acquisition. In terms of negative emissions, we are developing options or an option for the world's largest negative CO2 facility at the Drax Power Station, and we're increasingly confident that we will be capturing and removing 8 million tonnes of CO2 from the atmosphere in 2030. And as we'll talk about today, we're also now developing options for doing that outside the U.K. internationally. And finally, if we think about our power business, over the last couple of years, we've become almost a completely renewable power company. We have run a coal on a handful of days, but we still remain very much committed to closing our coal-fired power generation by September of next year. We've sold our combined cycle gas plants, and now we're running primarily almost exclusively on renewable biomass, right? We continue to have an attractive customer business, selling to large I&C customers and supporting them on their decarbonization journey. And as we'll talk about, we see increasing opportunities for us in the U.K. in dispatchable, renewable power as a system decarbonizes, and there's large -- significantly more intermittent generation, we think there's a really important role for dispatchable power. At the same time that we've been making a lot of progress. I think the global environment is also really, I would say, moving in our direction. At COP26, lots of different views about whether that was a successful event or not. But from my perspective, there was a clear increase in ambition both from companies and also from governments to tackle climate change. And a couple of things came out of that. One was there's, I think, a broader recognition of the important role of carbon removals, whereas in the past, people would have often said carbon removals are really the last piece in the puzzle that might come in the 40s. There's absolutely a recognition now that we need to start removing CO2 from the atmosphere now. And the second thing I would say you talk more about is also the increasing recognition of the role that biomass can and will play. So if I go through this, again, I'll spend a little time on this. If you go really across the globe, several countries over the course of the last year have reiterated or increase their commitment or the recognition that biomass has an important role to play in their sort of decarbonization plans. So in Japan, they're accelerating their closure of coal, and they expect the use of biomass power generation to double from 4 to 8 gigawatts. Across the rest of Asia, Indonesia wants to replace about 7 million tonnes of coal with biomass and South Korea is closing many of its coal-fired plants and again, has already got biomass in the mix, and we would expect that to increase. In Europe, in their latest strategy for getting to net zero, They expect the use of bioenergy to increase by 70% to 2050 to meet their targets and there's a clear statement of support for coal to biomass conversions in areas of just transition and also support for biomass when combined with carbon capture and storage or BECCS, right? So again, another important opportunity. And finally, I think it's worth highlighting in the U.S. And the Biden administration's sort of road to net zero plan that they published around carpet. They again recognize the role that biomass and BECCS can play. So again, we see an increasingly attractive world for biomass. Just highlighting that statement in the upper right, I mean, Frans Timmermans, obviously a key player in the EU. He is again not known to be a significant supporter of biomass, I'll say, with some British understatement. But he has also come out and has been very clear that there's an important role for it to play. And as Alan will discuss later, it has to be the right biomass. And we're absolutely supportive of the need for it to be the right biomass. And we'll talk about what that means. To talk a little bit more about what happens -- happening in the U.K., and I'll go through this quickly because Jason can give you more of the detail. But around the time of COP, really 3 key things happened. One is that the East Coast cluster was chosen as a priority cluster. Secondly, in the bioenergy strategy, there's a clear commitment to developing a BECCS business model and the role that biomass has to play, again, reiterated in the U.K.'s policy framework. And I guess the new thing, which I think is quite important is the aim to have 5 million tons of greenhouse gas removal in the U.K. by 2030. And I think it's very difficult to do that without Drax. And again, we are looking forward to working closely in partnership with government to see if we can make that a reality and we can help to deliver that ambition. So where does that put us now, right? So if you, again, start from our purpose, build on to that our ambition. We're now sort of laying out 3 new strategic games for Drax. So the first one is to be a global leader in sustainable biomass pellets, pellets that we sell to third parties, pellets that we use for ourselves and all of the elements that go alongside that. Secondly, to be a global leader in negative emissions, and we'll talk more in detail about what we're doing in the U.K. and also what we are thinking about are planning to do internationally. And thirdly, to be a leader in the U.K. in dispatchable, renewable power, right? It's interesting. We get a lot of questions about the fact that we have run coal a few days in the sort of, significance of that. I actually think that the bigger significance of what's happening in the market now is that actually our biomass is going to be increasingly important in the system over the next 10 years as other forms of dispatchable power fall away. But again, the key point in the bottom, all of this -- all of these strategic aims need to really be underpinned and they are for us by safety. Operating safely is absolutely critical for us, by sustainability, doing this in the right way, absolutely key to us and the continued goal of reducing cost to, I guess, again, we're going to pivot a little bit to $100 a tonne, but equivalent to that GBP 50 per megawatt hour. So what I'm going to talk about now is I'm going to spend some time talking through some of the detail around those 3 different strategic objectives, right? So in biomass, sustainable biomass pellets, we see a very significant market opportunity. We see a lot of growth there. And we see the opportunity for us to use those pellets, not only to sell to third parties, but for BECCS, and for generation. And we also have targets that we're developing, and we're publishing today. So we have a target to double our sales from 2 million to 4 million tonnes by 2030 and to also double our production from 4 million to 8 million. And I'll talk to all of those pieces through now. So in terms of the market, the biomass or the global pellet market is not one that is that heavily researched. And we were showing you a couple of forecasts as well as our own here. So the green bars is Hawkins Wright, and then the yellow line is FutureMetrics. They both tend to be sort of relatively straight line kind of outlooks and don't necessarily account for what we see as the significant policy changes on the horizon. So our view would be more in line with the FutureMetrics one. So we think that the market could grow from its current 40 million tonnes a year to roughly 80 million over the course of the decade, and that's driven by the developments that I've already mentioned before. The doubling of biomass use in Japan, increases of biomass use in other parts of Asia, Indonesia, South Korea, the use of biomass for coal to biomass conversions and for BECCS in Europe as well as potentially in other markets, right? So again, we see significant opportunity to double over the course of the next 10 years. Just a quick note on where the market is today. As you can see there, we are alongside Enviva, sort of the larger -- the largest producers in the market. Graanul, company based in the Baltics, third largest producer. Again, as probably many of you know recently did a significant strategic deal with Apollo, where they bought 80% of the business. So again, we are seeing both increased activity in a corporate sense in the market, and we see also a growth of sort of more regional players. Again, as you'll see on that list several of those players in Asia, where we see some of that growth. Where are we today as a producer of pellets. So we have 13 plants. I think importantly, of those plants, there are 7 in British Columbia, 2 in Alberta and the rest in the Southeast of the U.S., right? Of those plants, there are the legacy plants from DBI. We have 3, 2 in Louisiana, 1 in Mississippi, and the rest are from Pinnacle, including the 1 at Aliceville in Alabama. We have access to 4 different ports 2 in British Columbia, Vancouver and Prince Rupert, and 2 in the Southeast of the U.S., which gives us, I think, important geographic diversity as the world, as we are facing often weather challenges, weather in the Southeast or in the Northwest they don't tend to happen at the same time. So it does give us an opportunity to manage our supply chain, which I think is again quite important. As we mentioned in the announcement, we will be commissioning -- this year we will commission about 550,000 tonnes of new capacity. That's an expansion of LaSalle that's already finished as well as the opening of the plants at Demopolis and Leola, which is one of our satellite plants. As I mentioned before, we have now got an attractive third-party supply business with real opportunities for growth. As I mentioned, that global supply chain gives us real flexibility in terms of where we source our pellets and where we send them, which allows us to adapt to weather issues, production issues, et cetera, but it also allows us to optimize across the costs in the supply chain. We've got more than USD 4 billion of contracted sales that head -- that go out into the mid-2030s to very high-quality counterparties across Japan, Asia and Europe. I think important also to note, we feel very pleased with the Pinnacle sales team that's come on board. They have excellent relationships, again, both across Asia, Japan and Europe. And as I'll mention here, one of the key objectives we have in 2022 is to build on that team and to really start growing out our presence, right? So we will be aiming to set up a team in Tokyo. We're aiming to set up a team in London to cover Europe. We're going to build on the technical expertise that we've got to build as our technical sales team that can help customers with questions around coal to biomass conversions and around BECCS where we actually have a lot of, I would say, differentiated expertise to bring and also in support of our pellet business. And we'll also be growing out our capability to help on the regulatory front, right? As countries look to involve biomass more in their energy mix. There's a lot of interesting and important questions that we can help answer given our experience in the U.K. So I just wanted to spend a little bit of time on the question of supply and demand and how do we think about this? Because in many ways, this is now really very much at the core of the business. And the question that we need to be very comfortable answering is how many pellets do we need and where are we going to get those pellets from? So the top being the demand, as I mentioned, we expect to grow from 2 million to 4 million tonnes by 2030. We expect to be using about 5 million tonnes to run BECCS in the U.K. And again, we also think there's a very good possibility that we can run 1 or 2 biomass units on a merchant basis at the Drax Power Station alongside those 2 BECCS units. So if you add that all up, we think we'll need between 10 million and 11 million tonnes of pellets in 2030, and that's up from about 9 million today. Where do we expect to get those from? We expect to increase our own supply from 4 million to 8 million tonnes. And we also continue -- expect to continue to plan on sourcing some from third parties, both in the form of pellets, but also in the form of lower cost agricultural residues as well, right? And that -- frankly, having -- being on both the buy side and the sell side, I think gives us interesting opportunities both to narrow the market, but also to do to trade in and out of those positions. So that's our plan in terms of supply and demand. How do we plan to grow that sort of internal capacity? Well, first, I would say we're making good progress in what we've done this year. So as I've said already, the acquisition of Pinnacle has doubled our capacity. We are 550,000 tonnes of new capacity has or is being commissioned this year. We've put together a joint team effectively between the development team at Pinnacle, the development team at DBI. And we've combined the 2 road maps of opportunities that we're looking at there and we've spent a good part of this year doing that. And now the plan is next year, we would expect to get to somewhere between 0.5 million and 1 million tons of new capacity to get to a final investment decision on doing that next year. And that's broadly speaking, 1 or 2 larger scale plants. So a few words on biomass cost reduction. As I mentioned, we've made good progress in reducing costs already. And frankly, what's interesting about this is that we also -- as we look across our portfolio of plants, each of the different plants has a different profile, and that profile -- cost profile could be based on both logistics and the fiber sourcing but also the production process and the effectiveness or efficiency of the plant itself. And we have some plants that are already below $130 a tonne, and we see interesting opportunities to apply learnings across the fleet to sort of optimize across the different plants. Just to talk a little bit about the progress we've made so far. We've reduced our cost by about 15% in about 2.5 years, and we've talked a lot about this before, by an increase in the use of sawmill residuals, by co-locations with sawmills, by improving our rail logistics and a bunch of other things. We think there's continue to be opportunity to do that. The sort of the second chunk described there. We have more opportunities to do that across our existing plants. And as I said before, to share best practice across them. And then the third chunk is, again, ways that we can take that further across the fleet. So we are looking at new technologies. We're looking at sort of automation across the fleet, and there's multiple things that we think can be applied across the whole fleet to get us down to that target of $100 a tonne. So we're making good progress. We expect that to continue next year, and we're very much on track to hit that $100 a tonne number. Let me now turn to negative emissions because the second leg of the strategy is to become a global leader in negative emissions. And again, I'll talk a little bit about the market and how that's developing. We think that there's increasing recognition of the need for carbon removals. We'll talk about specifically we're what doing in the U.K. and then I'll also talk about our plans outside of the U.K. And I won't -- I'll go through this relatively quickly because Jason is going to talk about this all in quite a bit more detail. So the first thing is that we think this market opportunity could be as big as $1 trillion globally. So where does that come from? So the chart on the lower left is the IPCC's estimate of how much carbon removal they think will be needed to get to net zero, and they have a low case and a high case and 10 million -- sorry, 10 billion tonnes per year by 2050 would be their high case. I also want to point out that the 2025 number they've got there, which is 1.2 billion is, that's also, again, recognition that we need to start moving quickly to make sure that this starts to happen. The bar to the right of that is work that's done by the Coalition For Negative Emissions, of which we are a member, which actually goes into a bit more detail. Talks about 3 different technologies that can act as carbon removal technologies or greenhouse gas removals, GGRs. So 1 would be BECCS where we see the opportunity being between 2 billion and 4 billion tons. And importantly, let me say, what is the limit there? And the limit there, I think, quite critically, is on how much biomass we think can be sourced sustainably. Because fundamentally without being sourced sustainably, it won't do what it's says on the [ tendon ]. So we are very much again a firm believer that there need to be limits, and again Alan will talk more about the importance of that in a minute. Second piece is direct air capture, then and the third piece is nature-based or natural climate solutions, which is really about planting trees. And all of those, we think, can play an important role in getting to that 10 billion tons a year. Why is that worth $1 trillion? Well, it's $100 a ton. Microsoft has already said, that's what they think they should or they would be willing to pay. Carbon Tax in the U.K. is around GBP 70 without the carbon pricing support. GBP 70, you're getting pretty close to $100 already in terms of where the carbon prices are in the U.K. and Europe. So I don't think it's much of a stretch to think that, that $1 trillion market could become real. If I look at what's happened over the course of 2021 in the U.K., we've had 4 streams of work that I think you all know we've been working on. One is our own technology development, very much on track. We expect to announce shortly the choice of a FEED partner and the next steps in that process. In planning, we've begun our planning process. We're in public consultation. It's all, again, very much happening. Transportation and Storage, as I mentioned, being part of the East Coast cluster, really means that the pipeline will be at Drax by 2027, enabling us to transport the CO2 out and under the bottom of the North Sea. And the government's strategy, I mean, very clear that they are committed to BECCS, committed to greenhouse gas removals. I mean, a lot of work to be done to work out the details of that. And again, it's something that we look forward to working closely with government to make sure that we can be helpful there. But again, everything very much on track with what we would have hoped would have happened. And then next year, as I mentioned, the choice of our FEED partner coming up soon. We will continue with planning application. And then there's, again, more information coming from government about how they see this whole market evolving. What's happening with new-build BECCS? Well, conceptually, if you look at what's -- how BECCS works, the significant amount of the cost of what we do in the U.K. comes from transporting the fuel. So if you say actually being -- doing a new-build project near where the fuel sources are makes a lot of sense, right? so we look globally at that question. We think there's good opportunities in the U.S. as well as across Europe. And we've done a lot of work trying to sort of narrow that down, which Jason will talk about. It's also important we are near existing infrastructure for carbon for the CO2 storage. So again, that's sort of the second screen that we've done. And the third thing is that there are sort of national and/or local incentives already in place for carbon capture, which is a third element of the strategy, both for the carbon capture and I should say, for the renewable power. So we made a lot of progress in sort of developing where we think we can go with this. We're also -- and over the course of 2022, we'll continue that process. And again, our plan is to have 4 million tonnes of carbon removal up and running by 2030. Final piece of this, of the strategy, is really about becoming a U.K. leader in dispatchable, renewable power. And as I said before, I think the story over the last few months has been one which shows the -- already, this is a key need that the system has, and something that will become, we think, increasingly important over time. And we think we have some interesting investment opportunities that will allow us to participate in that. So again, the chart on the left shows the growth in dispatchable -- sorry, in intermittent power, largely offshore wind, very significant growth given the electrification of the economy. And that small sliver at the bottom is the amount of actual dispatchable power. But frankly, that's the amount of terawatt or gigawatt hours, you're going to need a lot more capacity to enable that because that might all be coming on at a single point in time. So again, we see, and then there's a peak demand increases, the need for both peaking power but also for system support, et cetera, will become increasingly important over the next 10 years. And there's not a whole lot of new ways of doing that at the moment. I mean there will be gas with CCS, et cetera, over time. But again, I think our biomass and our pump storage have a key role to play. And what we try to show on this page is if you look at -- as you move from left to right, you can see actually the sources of power that are increasingly sort of renewable or are more decarbonized. If you move from the bottom to the top, you see ones which are increasingly secure and/or dispatchable. And so where we want to be is we want to be in the upper right quadrant. And you can see our biomass up there, our long-duration storage, our hydro and our biomass without CCS. And if you look at the pie chart on the right, effectively, we provide about 45% of that capability to the U.K. market today. So how can we build on that? First thing is we have a project to do to increase the size of Cruachan. It's currently about 400 megawatts. By adding another shaft through the mountain, another set of turbines, we can grow that from 400 to about 1 gigawatt. We actually have done a lot of engineering work on this already, and there's a sort of similar, frankly, a process not dissimilar to the process that's happening for BECCS that is already underway. So that includes our own engineering work. It includes our own planning work, and it includes a consultation that the government is currently running to understand what's the best way to support long-duration storage in the U.K. And if you look at the timetable, that's really over the course of the next 3 years, we would expect each 1 of those streams of work to develop and so the consultation happening next year. Planning consent, we would hope to have in 2023. And be able to start building in 2024 for a program or a project that would start operating in 2030. I mean, Andy will talk more about the investment sort of the amounts and the returns. But we think, frankly, all the opportunities that I've been through, whether it's pellets, whether it's negative emissions or whether it's long-duration storage, have both -- have very attractive economics in terms of the returns that might be available to us and the certainty of the earnings streams that will come from them. So in summary, again, I think what we're laying out today is a set of new strategic objectives for the business, that will allow us to take advantage of what I see as sort of 3 very interesting and attractive growth opportunities for us, increasing the size of our pellet production business, increasing or creating and then growing our business delivering negative emissions. And our business also delivering dispatchable, renewable power in the U.K. And all of those underpinned by safety, sustainability and ongoing cost reduction and also critically delivering attractive returns for our shareholders. So with that, I'm going to turn it over to Alan, who's going to talk now about how sustainability is at the core of what we do.

So good morning, and thank you, Will. I was lucky enough to join Drax only in April of this year. having spent about a decade working at B&Q and Kingfisher helping them on sustainability, but naturally with a big focus on their forestry FSC sourcing policies. And then just slightly under 10 years working at ArcelorMittal, one of the larger, still largest steel companies in the world, helping them on sustainability and naturally there, carbon was a massive issue for them. So this opportunity was sort of really exciting for me because it allowed me to combine the whole forestry journey with the big carbon journey and also this commitment to carbon negativity. So that's me. And what Will and the rest of EXCOM asked me to look at was this journey from being a sort of a U.K.-centric company to a global centric company means we need a new philosophy, an evolved philosophy on sustainable development. A terrific job have been achieved, but now suddenly we're a global company. And also when you think about sustainable development, whilst carbon will always remain central to a sustainability strategy for Drax, we have to look at the wider agenda. And this is a slide, which I think just illustrates how sustainable development is bigger than just carbon. It's a sort of a figure out there, which if everybody in the world enjoyed the lifestyle we enjoy here in this room, we would need 3 planets worth of natural resources. So at 1 level, we're trying our best to resolve poverty, but we don't have the resources to actually do that. And one of the reasons why I illustrate this, other than just making the point that it's not just about carbon, is the answer therefore lies in innovation. We've got to change the way we make products, the way we've got to change the way we provide modern lifestyles. And I think what you will see already and Jason will reinforce this that the whole Drax story is basically based on innovation. So innovation is the driver for sustainability. And this slide, which I know is very well seen now the United Nations Sustainable Development Goals. Again, only 2 of the 17 focus purely on carbon and energy. So our new approach to sustainable development is going to look at this through the lens of us now being a global company, and also having a look at the wider sustainable development agenda beyond the carbon. So what we've done is we've looked at that, 17 is obviously too many to list. So we sort of come up with these 3 very clear bold statements, which EXCOM and the Board endorsed a few weeks ago. We will strive to be a climate positive company, a nature positive company and a people positive company. And we frame these as sort of outcomes. So what everything you've heard from Will just now is sort of when in the -- in the sort of the pretax and not only will we deliver the financial returns, but we will deliver climate positive, nature positive, and people positive outcomes as well. So that's how we are driving this. So now I want to do is just sort of unpack these 3 concepts to show you what we mean and how these concepts turn into real action and other positive outcomes. So let's first start with climate positive. Well, first, we can take a step back here and look at what we've already achieved. Not many companies can say they have reduce their carbon footprint by 90%. We have. We've achieved targets which other companies are still trying to achieve by 2050. However, that does leave another 10%. And so what we've done is we've decided to almost reset the clock and say, now let's chase that remaining 10% of our carbon. So now that we got coal out the way, what are we going to do with the rest? And so we've made the decision to be net zero, not by 2050, but by 2030, so we can link our own corporate footprint to net zero at the same time as we start to be a big seller in carbon negative emissions. And that means at least a 42% reduction in our Scope 1 and 2 and another 42% in our Scope 3. And what we're doing now is the exercise to look at all of these sources of carbon and see how much further can we go beyond the 42%. And this list nicely illustrates just what's at stake here. In the past, it was let's stop using coal. Now we've got to look at every single what I call node in the business, understand what the carbon emissions from that node are, and what choices we have to squeeze that carbon out of that bit in the supply chain. So that's why we've used the word forensic here. This is a complete forensic analysis of everything we do to squeeze that remaining 10% out of the business. And finally, our most positive outcome is being negative. We will be the world's largest carbon negative project in the world and Jason, and we'll already impact on that. So that's how you can see that these sort of -- these concepts of being climate positive can be turned into real measurable actions aligned perfectly to the business model. A newer concept, which is emerging is nature positive. And the key to this phrase, which is out there, people are talking about it, defer of talking about a nature positive U.K. economy means not only we will do no net harm to nature, but our activities have to restore nature. We need more nature in order to sustain the economy. So what actions can we take as a company, like other companies to be truly nature positive, and people are trying to frame this around the 2030 deadline as well. And of course, for us, this is pretty much the biomass story, making sure that we buy the right sort of biomass. The intellectual case for biomass as part of the decarbonization of the global economy is well made. I've listed some on this slide. But what's interesting, the politicians, the senior influencers who say biomass is a good thing. They've all got into the habit of saying, but as long as it's the right biomass, the right biomass. And so that's what we've got to do. We've started ever since we burned the first pellet all those years ago, we've been chasing the right biomass but this debate is becoming more sophisticated and the systems we need to put in place to prove that our biomass is right are growing. So let me just explain what we're doing on that. Firstly, our biomass starts with wood. Wood is an essential part of modern society. wood is part of the solution to sustainable construction et cetera. So imagine a world without wood would be unsustainable. The biomass we buy is linked to the lumber and timber industry. There aren't vast rows of forest just been growing for biomass they're being been grown for the timber industry. What we do is we enhance the value of that industry by buying the bits the lumber industry don't want. So -- and this graph highlights at this table. If you look at the row at the top, it's how we classify the different bits of wood we buy. It's the waste from sawmill residues. It's the thinnings of a tree, which are too small or roundwood, which is too low quality to be useful for the lumber industry. And the column shows you where we're getting most of our stuff from. We only buy from areas where that commercial forestry regime is well regulated. So the very nature of what we buy and where we buy it from already shows you that we're generally buying the right biomass. But of course, that's not enough. This graph just illustrates the economics of that. If you are a forestry company, you are growing trees for lumber. They get a lot more money from it. But as I've said already, there are parts of the tree which aren't useful for the lumber industry, and that's what we use. So the economics makes us buy the right sort of biomass, but that's not enough as well. I've already made this point because we rely on commercial forestry and we only buy from regions where commercial forestry is well regulated. We by default only buy from forests which are regulated by regulations and laws to create nature positive economic positive outcomes. But again, we go 1 stage further. We also rely on forest certification schemes, voluntary schemes and here's a list of 4 of them. These are all global. So forest companies choose to get their systems, their forest systems, certified by these standards. These standards go beyond regulation, so they're more demanding, but also the way they're set up is powerful. Because these schemes are multi-stakeholders. So you have NGOs, civil society involved in the standard setting process and designing the auditing processes. So these systems are designed to keep the NGOs and civil society confident as well. They're put around the world. The first 3 are designed for forestry, full stop. And the third -- the fourth one, SBP is designed around biomass, and we use these schemes, particularly SBP to make sure that we do that extra layer of checks. And then finally, because biomass itself is heavily regulated, to use biomass, we have to prove to regulators in the U.K. that we are only buying the right biomass. We have our own compliance system where we do checks of every single supplier, every single batch we buy. And that is reinforced by our own sourcing policy, which actually goes beyond the regulations required of us. So we have a whole team dedicated to checking every pellet, which goes into our business to make sure it's okay. And finally, having done that work, we are engaged in commissioning studies to go back to the first, which we rely on to see what's happened and what is continuing to happen. So after the event, we're doing further checks. And what we're seeing in Southeast U.S.A. is the forest growing bigger. And because of that and because of the strict management regimes imposed on those forests, their actual carbon stocks are growing. So we are buying from areas where carbon is being drawn out of the sky and stored in the ecosystem. And we're helping that by being an economic contributor towards that regime. So you can really see how we can definitely start arguing that we are a nature positive company and the nature positive ethos will also get us to focus on biodiversity and other noncarbon related outcomes. And finally, because we have strict firewalls and we do turn away biomass, which isn't good enough, we've recognized that being a global leader, as Will describes in biomass, means we have to think about the rest of the sector. We don't think there's a great advantage of just being super sustainable if the rest of the sector isn't. And so we're very involved now in more and more initiatives where we're working with the rest of the sector to get them to want to and embrace the high sustainability standards we have. The Glasgow Declaration was something we signed in the COP meeting, 80% of the sector, the big players agreed a series of initiatives, but one of them was the 16 principles of sustainable biomass. So we recognize and we're fulfilling our role in taking the sector along with us. And so what these boxes do is summarize the sort of the drumbeat of events, interventions we do to make sure that our biomass is the right biomass. From where we buy from the regulations in those sources to our own compliance practices and then spreading that thinking across the whole sector to show our leadership in the sector. And finally, the sort of the bottom right-hand box is everything we do, write, think about those reports. I've commissioned our check by our own independent panel of highly qualified senior scientists. So our science, our core detailed scientific thinking is checked on our behalf by our own scientists as well. So firewall after firewall after firewall to show that you can get the right biomass. We've always had the right biomass, and we will continue to have the right biomass. However, you know that biomass remains controversial. So as well as doing all of this, we're very proactive in engaging with stakeholders, civil society and other people, politicians, to explain what we're doing and explain that story and make ourselves available for challenge and scrutiny. So we are doing our utmost to make sure that people hear our truth and get more comfortable in believing it. And very finally, something I'm very excited and proud about is a real commitment to start looking at the possibility of buying biomass in the U.K. for our U.K. plant. We've announced -- we've launched an announcement with NFU to see can we grow U.K. energy crop base supporting British farmers, reducing their transport distance and actually have a bioenergy crop source within the U.K. for our U.K. plant. So we've got a year-long project looking at the economics and the biodiversity and other impacts on that. But it's something we're very positive about and very ambitious about that in a few years' time, we'll be talking about a proportion of biomass we're buying from the U.K. When it comes to people positive, we do everything you would expect us to do, if not more. We're very proactive in regional development. The East cluster is a good example of that. We're very sensitive that we are -- we have neighbors and communities around our pellet mills, and our generation sites and we do all of that community outreach, charity stuff. We're very proactive in the skills and green jobs arena, and that's not just for us and our own talent pipeline, but the wider community as a whole. And of course, we have very strong firm commitments to diversity and inclusion. So finally, hopefully, what I've demonstrated just now is what's emerging here is a really unique and powerful business model. The more successful we are economically, the stronger and bolder and more far reaching are our outcomes for climate, nature and people. Thank you. I'll now hand you over to Jason to talk about BECCS and innovation.

Thank you, Alan. So I'm Jason Shipstone, the Chief Innovation Officer for Drax. And in this section, I'll recap a little on what negative emission technologies are, talk about how BECCS works, and then cover our work in the U.K., briefly touch on our international development work and finish with a quick update on our cost reduction work. At Drax, we have a long history of innovating to reduce the impact of our business on the environment. Starting with emissions reductions, so things like flue gas desulfurization back in the early '90s, and then progressing to NOx reduction in the late '90s. And then our carbon reduction journey, which began back in 2004 and went on to deliver the transformation of Drax to the U.K.'s biggest renewable energy generator, which began in 2013. In the 34 years I've been part of the Drax business, I know it's a long time, I have been privileged I have been involved with many of these projects, and I'm excited to progress to the next chapter of that journey as we transition to a carbon-negative energy company in 2030. Global CO2 emissions reduction is happening, but not quickly enough to meet net zero 2050 using carbon reductions alone, which means that the need for carbon removals is increasing. Even if we were on track for net zero, we would still need negative emissions to offset the hard-to-abate sectors such as aviation and farming. This is based on robust science developed by the UN IPCC and the U.K. CCC, amongst others. As a result, the scale of action required to meet net zero 2050 will be profound. All negative emission technologies will have a role to play with the contribution of BECCS expected to be between 2 and 4 giga tonnes globally or the equivalent to 1,000 Drax projects, and we are aiming to be a global leader in this space. So what do we mean by negative emission technologies? So there were 3 main types: BECCS and BECCS is really an anagram of bioenergy with carbon capture and storage, so the energy piece could be electricity, could be hydrogen, could be liquid fuels. Direct air capture or DAC, and natural climate solutions. BECCS and DAC are often referred to as engineered removals as they use chemical and mechanical processes to capture CO2 and feature permanent geological CO2 storage. Natural Climate Solutions covers things like forestation, soil conditioning, advanced weathering and generally involves science being applied to improve existing natural methods of storing CO2. So let's look a little more closely at these approaches. So all have the potential to contribute globally at a significant scale increasing over time. The engineered solutions are more expensive than natural solutions, which reflects the nature and scale of the infrastructure required for permanent CO2 storage. But BECCS will deliver a lower cost of negative emissions versus DAC in almost all scenarios. Both should do a cost down potential over time, just like offshore wind and other climate positive technologies have done previously. Natural Climate Solutions are complementary to many current agricultural practices, but at scale it could require changes to current land use. So why Bioenergy with Carbon Capture and Storage? So within the Drax Group, we've been doing the bioenergy piece at scale since 2013. The CCS piece is proven technology, which is being delivered in multiple locations across the globe at 1 million tonnes per annum plus scale. The successful combination of the 2 of these at Drax is underpinned by 3 years of pilot work and technical development up to and including pre-FEED, which we concluded this year. BECCS uniquely provides 3 public and energy system goods. So it produces negative emissions. We get dispatchable, controllable renewable electricity. And this is what makes BECCS a perfect enabler for wider deployment of wind and solar by continuing to underpin a stable U.K. electricity grid. The question of when carbon removal should be deployed versus carbon reductions is one that's often raised, as Will touched earlier on. The reality is that both are required and quickly if we have to meet our climate targets as a country. To put some numbers to this belief, earlier this year, we commissioned a piece of work with Baringa to understand the benefits of deploying BECCS before 2030. Achieving net zero without BECCS could cost the U.K. an additional GBP 26 billion. Achieving the fifth and sixth carbon budget, which is a more near-term target without early deployment of BECCS, could cost the U.K. in the order of GBP 13 billion. The carbon cycle and biomass neutrality is underpinned by mainstream science in the U.K. carbon accounting framework. So just to explain how that carbon cycle works. So as forestry grows, sustainable managed forestry, the trees then capture CO2 from the environment. As those trees are harvested mainly for their primary use, which is construction and industrial timber, there is a byproduct from that timber process, sawmill residues and sawdust and also a byproduct from forestry, as Alan mentioned earlier, the thinnings and the branches and the timber that's unsuitable for construction use. The residues of both of these are combined to produce wood pellets. We use the wood pellets in the power station to generate electricity and the CO2 released as part of that process goes back into the atmosphere, which is where the tree got it from in the first place. So that's why the carbon cycle is neutral. By the additional -- addition of CCS technology, we can break that cycle. We can prevent the release of the CO2 from the stack at the power station, and we can permanently sequest that CO2 back underground, which is where it came from in first the place. So just to cover the technology. So we have an existing Drax Power Station, which is identified as #1 in there. Instead of releasing CO2 from the flow as I mentioned, it follows the route depicted by the #2 into absorber vessel. So the flue gas comes in at the bottom, and it passes through a long tall absorber and meets a shower of solvent coming the other way. There's a chemical reaction takes place between the solvent and the flue gas. And during that reaction, 95% of the CO2 in the flue gas is transferred to the solvent. That solvent then leaves the bottom of the absorber and heads to a stripper, which I think is far in this picture. In the striper, we apply heat and pressure which causes the reaction to reverse. So the solvent let's go of the CO2. The lean solvent goes back to the absorber. So that's a continuous process. The captured CO2 then is purified, compressed, and we effectively hand that over the fence to a third-party T&S provider to transport and stall that permanently. So let's briefly talk about the work we are doing on BECCS in the U.K., which is mainly centered around Drax Power Station and the Humber. So in order to have a successful BECCS project, one of the key things you need to have is an appropriately scaled T&S system. [ Bays ] are incentivizing industrial decarbonization via a cluster approach which would deliver these T&S infrastructures in a way which would allow them to connect to the maximum number of emitters. So you get the best value from a T&S infrastructure. Six clusters were initially farmed and [ Bays ] announced a competitive selection process to select the first 2 to be deployed by 2027. This is the Phase 1 process, which many of you will be familiar with. Phase 2 is the next process to select industrial hydrogen and gas with CCS projects. This is being run as a competition, not to select between vectors, but to enable projects within the same vector to be evaluated, ranked and selected. So when I talk about vectors, it's not about choosing hydrogen versus industrial decarbonization or hydrogen versus gas with CCS, it's to compare hydrogen project with another hydrogen project. So that's how that competition will work. Winning projects will progress to bilateral negotiations with government during the course of next year. The process for BECCS is a little different, probably more akin to an immersive DD process, given that our project has no real competition in the U.K. at the moment. So we expect this to run alongside the Phase II process and follow a similar time scale. To maximize the potential of the ENDURANCE, CO2 store, Net Zero Teesside and ZeroCarbon Humber, which were 2 neighboring clusters, agreed to combine to become the East Coast Cluster or ECC. This was the basis of the bid submission into the Phase 1 process, which was successful and saw the ECC being selected as 1 of the first 2 clusters, the other being High Net which is on the West Coast of the U.K. Drax sits in the ZeroCarbon Humber region of the ECC and we were a key founding member of this cluster. But as the ECC approaches FEED, the development process is now being led by BP with close support from others to coordinate and maximize the potential of the ENDURANCE store on the offshore infrastructure. And at Drax, we remain close to this process, as you would expect from such a large future customer. During the course of project development, we've maintained a regular and close dialogue with government to progress business model development such that it would support the deployment of BECCS in an investable way. Government also commissioned its own work by Vivid Economics and Element Energy and proposed 2 business models, both of which would work for a BECCS project. The power CfD with negative emissions payment has been identified as the lower risk, more deliverable model with less change required to other mechanisms for it to be implemented. This is very similar to the current business models used for biomass and wind today but adapted to cover the specifics of a BECCS project. Okay. So shortly, we'll play a video, I hope, which will show you some of the BECCS deployment at Drax. But just a few key metrics before we do. So we're proposing an 8 million tonne project in the first phase, which is made up of 2 x 4 million tonne units. So a BECCS unit of 4 million tonnes on each power station unit, which will be commissioned sequentially and are utilizing MHI's technology as the basis for the project. This will give us first move advantage and align line with the time scale set out by government in phase 1 of the cluster competition. There is also a potential for a second phase, which would deliver more negative emissions at Drax site at a later date. So I'm going to call on Bob now if he's there, just to see if we can get the video to play. Okay. So this is a digital simulation and just a fly-through of the power plant to show you what this might look like. So the energy generating piece is around the front of the power station. The emissions control equipment generally is around the back. So the existing emission control equipment, things like FGD, precipitators, some of the ash handling systems are no longer -- will no longer be needed after October 2022. They're primarily associated with the coal units at that end of the power station. So in order to make way for BECCS they need to be removed, so you can see those disappearing here. The BECCS project is quite big. It uses a lot of land. So lots of other ancillary buildings and infrastructure have to be moved out of the way. FGD also has a common plant, which is something it shares with BECCS, BECCS has a common plant also. So the idea here is to remove the [ ex ] FGD common plant, clear that area and make that ready for the BECCS common plant to be deployed. So this is actually the cooling system for the north end of the power station, which used to serve Units 5 and 6. The BECCS process is quite a complex chemical process. There's lots of things being heated up cooled down. It's a slightly exothermic reaction, so it just generates heat. So the cooling demand of the BECCS project is quite significant. So here, we're repurposing the system that used to serve units 5 and 6 to serve the BECCS project. It's quite an extensive piece of work as you can see from the image. Once that's in place, we then start build of the actual carbon capture units themselves. So you can see the first absorber going now, shortly followed by the first stripper, which is there. So that's -- those are both associated with the first unit. And then the second unit, absorber and the second unit stripper follow on, quite big structures. As I mentioned earlier, the process does require heat and pressure in order to work. So we draw the heat from the existing biomass units in the form of steam. We also tapped electricity of those biomass units, and then we return the condensate from that steam back to the same boilers to maintain the water bound. This is some of the common plant being built, so things like aiming, storage, a water treatment plant for pure firm wastewater and also CO2 compression, which is a key part of the process, the pipe by the way, would come into the site somewhere of the CO2 pipe around the site. So by 2030, we would have a site that had 2 units featured in BECCS, abetted biomass units, 2 units that didn't feature BECCS but would still be able to run. This would give us a total export power of 2.2 gigawatts and a carbon captured for the site of 8 million tonnes a year. Okay, Bob, over to you to get back to the slides. Okay. So just to talk a little bit about the timeline for the project to Drax. So next year is all about selecting our FEED study partner, starting the FEED process and submitting our DCO, which is our planning application. In '23, we hope to complete FEED, confirm our business models with government and start demolition as you've seen in the there to create space for the build. In '24, we hope to get our DCO granted, which will allow us to take a final investment decision and commence build of the first unit. In 2027, we should commission our first 4 million tonne unit. '28 and '29 are all about build of the second unit, and we hope to commission that in 2030. So that was an overview of the work at Drax Power Station. The next couple of slides, hopefully, will give you an insight into the work we're doing internationally. So we've been working on potential options to deploy BECCS outside of the Drax site, looking primarily at Europe and the U.S. We're targeting 4 million tonnes of new-build BECCS by 2030. And the key components of a project are things like the technology, technology development. So we have to design a power station, what size is it? What are the key metrics? Biomass availability. So these projects are likely to run off wood chips and agricultural residues not necessarily wood pellets. The CO2 infrastructure is important. It's difficult to create from scratch or having something there already would be useful. And obviously, a supportive political environment. We believe we can turn our first-move advantage building off of our work in the U.K. into a growth position in the U.S.. So just to talk in a bit more detail about some of these development points. We've identified several countries with good CO2 storage potential, which is kind of where we started because that's the hardest bit to do. But the U.S. is a very favorable and proven existing network, both in terms of pipelines, which are already there and suitable storage geology. Moving the project to the fiber is a concept makes sense. It reduces transportation distances and emissions and would allow us to use boiler technologies, as I mentioned earlier, that can take and process wood residues, chips, agris, things like that. We have to build a power station as well as the CCS plant. So the project is more complex and the CapEx is higher, but the output, so the fuel price -- sorry, the fuel price, the power price and the CO2 price should be competitive due to the lower cost fuel and simplified logistics. Having the ability to design a plant from scratch should create some opportunities for higher efficiencies. So the heat integration, the steam cycle, some of the BECCS technology sort of tweaks that we can do should all improve the efficiency of the plant, which should drive down the unit cost of the output. The U.S., Canada and EU all have supportive political and regulatory environments and climate targets, which should encourage the right environment for BECCS development, and we are actively exploring these at the moment. So let's move on to talk about some of the work we're doing on biomass fuel innovation. The innovation team continued to lead a cross-functional effort across the business to drive down the cost of our fuels and therefore, the cost of bio generation. We have assessed over 100 different fuels since the last CMD and progressed 10 of these to trial this year, which has led to a significant uplift in allowable burn limits for some fuels and Arabella who is in the audience has been largely responsible for much of that work. We have sent 2 new contracts for different fuels under a different procurement structure this year, and we're working in partnership with NFU as Alan mentioned, and others in the U.K. with a goal to increase the U.K. source content of our fuel basket, which is something government is also very keen to see. The chart on the right gives you a feel for the development cycle. So for some fuels, this is relatively straightforward. So the closer the outer wood pellets, the easier that is. But as they get more distant from that, things like handleability, prior experience, chemistry, the procurement model, the counterparty country, et cetera, all factor into that development cycle and can influence how long it takes. We follow this cycle to ensure the fields we use are safe, create value and don't affect reliability. So that's the end of my section. I'd be very happy to take any questions at the end of the session. But now I'll hand over to Andy for the financial update.

Thank you, Jason, and good morning, everyone. So I'd like to start by summarizing the Drax investment case. So Drax has a strong track record of operational and financial performance. delivering annual EBITDA growth along with GBP 1.5 billion of net cash from operating activities over the last 5 years. The business today has strong visibility of earnings underpinned by index-linked cash flows, and it provides a firm foundation from which to address the long-term and very significant low-carbon growth opportunities that we've outlined this morning. Whilst ambitious, the targets we've outlined are clearly aligned to sizable market opportunities. And whilst the investment required of GBP 3 billion is large, we believe it can be self-funded by high-quality index-linked earnings and cash flows and deliver a strong return and a business in 2030 with significant EBITDA expansion that generate significant high-quality free cash flow and with a net debt-to-EBITDA leverage significantly less than 2x. Our investment plan is consistent with our existing capital allocation policy, whereby we can maintain a strong balance sheet, invest in our core business for growth and pay a sustainable and growing dividend throughout. Importantly, Drax has a differentiated position from which to address these opportunities. Firstly, almost 20 years' experience in biomass and long-term relationships with the forest products industry. Secondly, a diversified supply chain that provides opportunities for trading and optimization. And thirdly, a leading position in the development of negative emissions technologies -- So looking closer at the opportunities for strategic capital investment. The investment to add around 3 million tonnes of production capacity, supports our ambition to be a global leader in sustainable biomass pellets. And it's an enabler of our plans for U.K. BECCS and expansion of our third-party supply business. Assuming around GBP 200 per tonne of capacity, this will require around GBP 600 million of investment. And by contracting 2 million to 3 million tonnes of additional biomass from other sources, we can also support ongoing generation. As market forecasts for sustainable biomass pellets show a visible route to doubling of global demand over the next 10 years. These investments add incremental capacity from 2024, and we believe have the potential to deliver low double-digit returns or above. Next, the investment in U.K. BECCS supports our ambitions to be a global leader in negative emissions and will require up to GBP 2 billion of investment underpinned by long-term index-linked power and carbon payment schemes. As Jason noted, we'll take a decision on the commencement of a full design study shortly, enabling the full investment decision by 2024 and construction through to 2030 with the first unit operational in 2027. We believe that these investments can deliver at least high single-digit returns and pave the way to a valuable opportunity, noting the PRI's comments that Will outlined about the potential for a $1 trillion market. The investment in Cruachan 2 supports our ambition to be a leader in U.K. dispatchable, renewable power and will require around GBP 500 million of investment. It's underpinned with long-term earnings stability such as that provided by a cap and floor mechanism, and we anticipate the final investment decision in 2024 and construction from 2024 to 2030. With the system becoming increasingly dominated by non-dispatchable power. So National Grid's future energy scenario shows a need for an additional 1.4 to 2.4 gigawatts of new pump storage in hydro. And this project could meaningfully address that requirement by 2030. And deliver at least high single-digit returns. We'll also continue to explore other investments such as the new-build BECCS that enable growth and support our strategic aims. We'll always seek to underpin these with high-quality earnings and target double-digit returns. We're earlier in the planning for new-build BECCS, but we've made good progress in 2021 and we're targeting 4 million tonnes of negative emissions outside the U.K. by 2030. So the key point that I'd like to make here is that the 3 biomass models that underpin our growth opportunities are complementary, and they're not mutually exclusive. We'll determine which option or combination of options creates the most value, and we'll always test them against a market price for biomass, seeking to maximize the value from our supply chain and deliver earnings stability and growth. So having talked about the investment opportunities, I'd like to walk through how we think about self-funding these investments for growth through returns from the existing business and these strategic investments. As I've already noted, our existing business is highly cash generative with strong visibility over a high proportion of long-term cash flows. And we expect that these strategic investments will also be underpinned by long-term index-linked earnings and cash flows, whether that's power and carbon payment schemes for U.K. BECCS, a cap and floor type mechanism for Cruachan 2, a long-term contracts with high-quality counterparties for expansion of our third-party supply business. So on the left, our base plan starts with our stated target of 2x net debt-to-EBITDA at the end of 2022. Then for the period until 2030, we've assumed firstly, around GBP 2 billion of free cash flow from the existing business, and we've defined free cash flow as adjusted EBITDA, less interest, tax and growing and sustainable dividend and maintenance CapEx. So next, the GBP 3 billion of strategic investment for pellet capacity expansion, for U.K. BECCS, and for Cruachan 2. And then finally, around GBP 1 billion of post-tax cash flow from these strategic capital investments by the end of 2030. Now there's a phase contribution based on when these projects become operational. So with the first additional pellet plants in 2024, the first BECCS unit in 2027 and the second BECCS unit in Cruachan 2 in 2030. But these investments are underpinned by high-quality, stable earnings and they deliver strong index lent cash flows well beyond 2030. And overall, this base plan delivers a business in 2030 that has significant EBITDA expansion that generates that significant high-quality free cash flow, returns at growing and sustainable dividend and has a net debt-to-EBITDA significantly less than 2x. We think that our high-quality strategic portfolio provides a range of options for financing but our base plan is to self-fund these investments without the need for issuing equity. So our capital allocation policy that was launched in 2017 is unchanged. We believe our plan is supportive of maintaining our credit ratings and paying -- growing a sustainable dividend throughout the period of this strategic investment. So finally, in summing up, the strategic ambition and the targets and the investments that we've outlined today are clearly aligned to sizable market opportunities that Drax is strongly positioned to address. And whilst the total investment is large, we believe it can be self-funded through these high-quality index-linked earnings and cash flows and that they can deliver a strong return and a business in 2030, as I've noted, with expanded EBITDA, generating significant free cash flow and with the net debt leverage significantly below 2x. So with that, I'll hand over to Will to compare the Q&A.

Thank you, Andy, and I think what we'll do is we'll start with questions from the floor. [indiscernible] and I think we have a couple of microphones in the back. And why don't you guys hands up. So Mark, you going to start?

Mark Freshney from Credit Suisse. Two questions, if I may. Firstly, on the large part of the strategic CapEx, which is the BECCS conversions drags at GBP 1 billion a piece. I mean you've done the initial pre-FEED, you've got the video, but there's presumably a lot of work to still do. So how confident are you on that GBP 1 billion? And is that a cost to beat or just a point estimate? And secondly, with regards to the international expansion plans, I mean you were talking about that in the media last week. Would you consider sort of like changing the 2 units in the U.K. to 1 in the U.K. and 1 international. I mean, how -- I guess, what I'm asking is how serious are you about the international expansion?

Okay, on the first one, I would say, as with any project like this, we're still at a pre-FEED stage. So we need to get through the FEED study to see ultimately where those numbers play out. I would say that we have been working on the program for probably 3 or 4 years now, and that number has been reasonably stable at that level. So I feel pretty comfortable, as comfortable as one could be given the stage of the project we're at, that that's a good starting point number, right? In terms of the second question, we are extremely serious about BECCS in the U.K. We're also extremely serious about BECCS internationally. And as Andy laid out, we don't think those are mutually exclusive options. We are serious about both.

John?

John Musk from RBC. Can I maybe start with a question for Andy around the sources and uses of cash. I just wanted to think about the phasing, as you mentioned around when the CapEx is going out and then some of the additional GBP 1 billion coming in, do you expect to be below 2x or at or below 2x across that period or we're likely to see a peak in net debt at some point? And then secondly, on the same slide, if we are assuming net debt is going to be broadly flat between now and 2030, as the slide illustrates, obviously, leverage is coming down, that will be implying an EBITDA forecast, which I'm sure you want confirm, looks somewhere around about GBP 700 million or so come 2030? Is that something that you would want to comment on?

So let me take the 2x. I mean the peak investment period in that plan is '24 to '27. And clearly, we have very strong visibility over cash flows prior to that period. And in the trading update this morning, we showed that we're pretty much fully hedged for next year and half of our capacity hedged for '23. So that does give us good visibility over strong cash flows over the coming years. So the great thing about these projects is that in and of themselves they develop strong future cash flow. So when the first BECCS unit is delivered and starts delivering those cash flows it helps support the funding of the second BECCS units and the completion of the Cruachan project. So the leverage will be 2x there or thereabouts at points during that process. But as we've shown before, when we've gone beyond 2x as we've done with acquisitions, we have the cash flow generation to delever very quickly. On the -- on your math, I can see how you would get to that number. But I'm -- yes, I think the important thing to say, though, is the number you've calculated is a 2020 -- a 2030 number. And those projects come on the last 2 in 2030. So they don't fully contribute during 2030.

John, 2 things I might add to that. One is, as we think about the phasing and as Andy, I think, laid out quite clearly, each one of these different types of investments sits on whether it's a long-term PPA, whether it's a government contract, whether it's clear sort of sense of where the pellets would go. So the phasing will depend again to significance when those things come through. So we've laid out what we think is our best case or the most expected case, but obviously, that will be flex in that, depending on where that all goes. The other thing I would say is that the numbers that Andy has shown don't include investments in the new-build BECCS, again, as you pointed out. So having that leverage well below 2 by the end of them does give us flexibility for those investments as well.

Andrew Wong from RBC as well. Just a little bit extra on that the new-build BECCS. Have you said sort of where that investment is going to take place? And how many plants? Is that 1 big plant? Or is there an optimal size of plants? How many plants would it be over?

Yes. So we haven't said where it's going take place. I mean I think as Jason laid out, we're looking at opportunities in the U.S. We're looking at opportunities in Europe. I think we are still sort of working through where the best places might be and there's I think some several good options, but I'm going to hold my powder on being more specific on that at this point. And the second part of your question, sorry, I've forgotten that.

[indiscernible]

Again, still working out exactly, but it's likely to be 2.

Just again on...

Name and...

I am sorry, Adam Forsyth from Longspur. Just again on the sequencing of and particularly on the first BECCS unit, do you think that can be fully -- you're saying operational in '27, can that be into full economics in '28 and beyond? And how -- to what extent does that apply and rely on the T&S being up and running? Or do you have other CO2 offtake options?

Jason, do you want to take that?

Yes. So the project should commission in 2027. I don't think we'd see the full impact of the project a little bit like Andy alluded to in a previous answer because it would come online probably towards the second half of '27. So you wouldn't see the full 4 million tonnes from that unit in that year. We work very closely with the T&S provider with the East Coast Cluster to look at the ramp-up of CO2 storage availability. It won't turn on. The cluster will not turn on on day 1 at full capacity. It will grow over time. So we've worked really hard with them to make sure our time line and their development time line match. But we're very confident that we can have the T&S system will accommodate the early volumes of CO2 from these projects.

Now Jenny?

Jenny Ping from Citi. A couple of questions, please. Firstly, just on the BECCS unit outside of the U.K., you talk about a significant step-up in terms of the CapEx. Can you try and maybe quantify that in the context of the GBP 1 billion per unit that we're going to see in the U.K.? Secondly, there's very little talks around retail. Can we just have a little bit more update as to what exploring strategic options really is around retail? And then thirdly, just to go back to that chart 13, I think you had the outlook in terms of the biomass. Do you include alternative uses outside of the sort of traditional power generation. I know Enviva is talking about supplying pellets to refining, et cetera. So it would be good to get some updates on that.

So maybe on the international BECCS, I would -- I guess I'll sort of hold fire at this point on what that might look like. It's still early days as we develop the technology to know what those costs might be. So that would be the first one. So on the retail side, now we continue to be very comfortable and excited about the I&C business, the large end of the customer business, and that business continues to grow. As we say in the announcement, we expect to be profitable this year in spite of all of the mutualization challenges that we have faced. And we continue to work on the strategic options for the rest of the business, which again, I don't think it makes a lot of sense to talk more about that now, so, unfortunately. And then the third thing, sorry, on the growth of biomass, a very good question. And I think the numbers that are in there are mostly based on biomass pellets for power. I think for those who didn't sort of don't know what Jenny was referring to, is that Enviva did a deal or announced a deal maybe 2 weeks ago at COP where they effectively are selling pellets that they expected to be used for sustainable aviation fuel in a -- for a European user. I think that, that's an opportunity in the market that will grow. I think pellets for heating in addition to power is also another market that will grow. But I would say there's probably at the margin outside of the forecast that we've shown there.

It's Ashley Thomas from Schroders. Just in terms of the international opportunity and your sort of competitive advantages, obviously, you've got a strong relationship with MHI. But in terms of the newest solvent, sort of -- is there any sort of demonstratable advantage versus their solvent versus I think Shell has got 2, Aker Solutions got one. Is there any on either capture rates or parasitic load that you can demonstrate using their solvent is better than another project?

Jason, you want to take that?

Yes, okay. How do I answer this tactfully. So there are differences between the solvents. We spent 18 months working with all of the different technology suppliers to understand the differences, and we chose MHI's solvent. So I'll let you read into that what you will.

No, I mean the other way, the other sort of maybe to extend a little bit on that. I think all of the -- as we chose or we're thinking about the technology choice for, call it, the first-of-a-kind project, we looked at a range of what I would call sort of best-in-class or current generation. So Shell, MHI, others, right? And clearly, we felt that MHI on a range of factors, commercial, technical, technological, support, et cetera, was the best. We are also, as you know, looking at next-generation solvents like C capture, and we continue to be I think, quite bullish on the opportunity for those to have, I think, to your question, significant advantage is relevant to sort of heat transfer to power use, et cetera.

It's Paul [indiscernible] from [ Investec ]. A question for Alan, actually. Can you just clarify a point, please? In terms of your all the targets you've given today in terms of emissions and, I guess, carbon savings, are they all done on a Scope 3 basis?

They are. We separate Scope 1 and 2. We're driving that. And we've also now got the 42% ambition to be net zero will include Scope 3. So, yes.

Yes. Here in the front.

Richard Marwood from Royal London. I've just got a question about the economics and getting the cost of Pellet Production down. Obviously, at the moment, the source of the fiber is on the other side of the ocean to where the plant is. How much of the cost of the value chain comes in the transportation of getting it all that runway?

So as a rule of thumb, we'd like to think that basically, the cost of getting the fuel to the power station sort of breaks down into sort of 40%, 40%, 20%. So 40% is the cost of getting the fiber from the forest sort of into the plant, 40% is the cost of making the pellet and getting it to the port and 20% is getting it from the port into the power station, right? So that number is -- and there are ways that we can optimize that. So that's as a rule of thumb. Obviously, the closer you are, the lower it might be. So one of the things that is an important consideration as we think about new plants, new wood baskets is distance, right? So that's obviously a piece of it. The obvious challenge we have is also decarbonizing that. So that's another challenge we have, and there maybe that may have cost implications, either lower or higher, depending on how that happens. But fundamentally, the other -- I mean, the other 80%, again, that's where we see lots of that opportunity, right, so. Yes, Dominic.

It's Dominic Nash, please. Three questions, please. Firstly, could you just talk through what we expect to see and how the negotiations are going for the carbon CfD over sort of the next 12 months plus for us to get some clarity on that side? And secondly, on pellets. Looking at your demand number and you yourself say it's 10 million to 11 million tonnes BECCS International. So if -- is it fair to assume that if you announce an international expansion, there will be self -- further self-supply growth coming from your pellets. So if we were to model in 4 million tonnes of International BECCS from these 2 plants, then we might have another 2 million tonnes of pellets on top of your numbers.

Yes. Is there a third one?

Yes, there is. Sorry, I carried away with that. The third one is you might have a bit of a zig-zag, I don't know if that's a technical term or not for pellet demand in 2027, 2028, and '29 and if you don't get it -- if you get it delayed and it comes in, BECCS comes in, I don't know a couple years late, you're going to see a big fall off in your pellets as they go merchant and then a ramp up again. How are you going to match that uncertainty with long-term pellet contracts?

I'll start with the first. So I guess the way that the -- let me sort of go backwards a little bit in time. So probably a couple of years ago, BEIS started a whole consultation process on different carbon capture business models, right? And as that evolved, that became focused on industrial capture on gas for CCS and on hydrogen as well as the T&S. And BECCS was not in the same stream as those, right? And that was largely because I think as Jason mentioned, there are lots of competing projects in the other areas, and there's less so in BECCS, right? Over the course of the last year, we've worked closely with BEIS to make sure that they -- began to share with them what we're doing, make sure they understand what we can do. And they've -- again, they've built up their own team. They have a BECCS team that's now working on this. And again, as Jason described, the process by which competing projects will be chosen for industrial capture gas with CCS and hydrogen will be very much a public process, competition, et cetera. And BECCS will be done more, more privately, right? So what we do know what they just said very publicly is that they are going to be developing a BECCS business model, and we would expect it in the second half of next year. But actually, I mean, the rest of the process, I think, is still being worked through and exactly so I can't really speak for them as exactly how that would work. But again, all I would say is we would expect to work closely with them over the course of the next 2 years to develop that. And again, we are -- I'm quite hopeful that the timetable that we would work to with them is consistent with us being ready to make a final investment decision by 2024.

So just -- sorry, following up from that. When do you think you get to stand up and when we get an RNS from you saying we've agreed on GBP 100 a tonne, [ 50 ] new CfD. How...

I don't know.

Between now and 2024?

That's a good answer. No, but it's -- I mean, to me, I guess, the key thing for me is I think that the solution that we can provide for helping the U.K. reach its greenhouse cash removal target is, I think, an attractive one, right? Now there's all sorts of things that we need to prove and they want to -- they -- government rightly wants to make sure that the sustainability criteria work. I mean we've been challenged to deliver more domestic feedstock, for example, there's a whole series of supply chain. But there's a whole lot of stuff that needs to sort of be worked through and that will take some time. And again, we're obviously very respectful of the process the government needs to do them to make it happen. Second point on the pellet demand. The 2 ways of doing a BECCS project, retrofit, newbuild. Newbuild projects, our expectation is that they are much more likely to be near the source of the fiber, in which case, as Jason mentioned, we would use wood chips or other agricultural residues. So in that case, there would not be an increase in pellet demand. There are also opportunities to do retrofit. We have power companies coming to us and we'd like to do a biomass conversion. We'd like to add CCS. If we get involved in a project like that, which also could happen, then that might include pellet demand, right? But I would say, base case is probably more likely than a newbuild to be in the first instance. But the other one is also something we are looking at. Third question, zig-zag '27, '28. The -- I guess the way I would answer this question is that the closer we get to 2027, 2028, the more important the timing elements will be, right? And so right now, for me, we think about the broad scope of a decade, making sure that the sort of projects to start sort of in the time frame we're talking about is the primary objective, and I think we're making good progress there. As we get closer to that point in time, that will become -- I mean, I shouldn't say it that way. We're already obviously thinking about the answer to your question. And I don't have a good answer to exactly what will turn out. But making sure that we have a home for our pellets, which may be running merchant power station, with or without some more -- some other form of support, maybe it's through selling to third parties, absolutely key. But from where we are right now, I think the key thing for us is that, as we get towards the end of next year, we are going to need to have sort of more certainty around what we do in the U.K. because the time that we would need to sort of move those pellets to other buyers becomes much more critical. So if we have absolute confidence in 2023, we're going to be using BECCS and I think we're in a good place. If we don't, then we will have to be making other decisions around where we deploy them.

Is the U.K. government aware of security supply issues about making a decision here then?

Absolutely. There's no question. I mean, so the need for us to make sure that we have -- somewhere for those policies to go is absolutely something we've discussed with government. Yes. Sorry, go ahead.